Unit Two:

Project
Identification
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 GENERATION AND SCREENING OF PROJECT IDEAS
 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. Preliminary screening.

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 Cont……
1. 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.
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CONT….
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

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CONT….
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

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 CONT….
4. 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/competition among existing firms
(intensity of rivalry)
Pressure from substitute products ( other
products)
Bargaining power of buyers
Bargaining power of sellers
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 CONT….

1. Threat ofnew 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.

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 Cont….

2. Rivalry among existing firms (intensity of rivalry)

Strong competition 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 confronts high exist barriers.

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 CONT….
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
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 CONT….
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

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 CONT…..
2.2. 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
Acceptability of risk level
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 CONT…..
2.3. 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.)
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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 CONT…..
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. E.g.
Factor Factor VG G A P VP Factor
weight 5 4 3 2 1 score
Input availability 0.25 x
0.75
Technical Know-how 0.10 x
0.40
Reasonableness of cost 0.05 x
0.20
Adequacy of market 0.15 x
0.75
Complementary relationship with 0.05 x
0.20
other products
Stability 0.10 x
0.40
Dependence on firm’s strength 0.20 x
1.00

Consistency with government 0.10 x

0.30
priorities
Rating Index=134:00
 Group Assignment

Develop a comprehensive project proposal

which will not exceed 25 pages. The project
idea may be a development or other business
project idea. Your group member couldn’t
exceed 3 members in one group. Submission
day after 21days through your class
representative.

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Elements of Project Proposal
Title page: indicate the project title,
The name of the lead organization ,
The place and date of project preparation and
The name of the donor agency to whom the proposal
is addressed.

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 Cont’d

Contents page:
If the total project proposal is longer than 10 pages, it is
helpful to include a table of contents normally at the start of
the document..
Abstract (Executive Summary):
The abstract provides a brief summary of the project and
should include:
 the problem to be addressed,
 the objectives to be achieved,

 the implementing organization,

 the key project activities and the total cost (budget) of the project.

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Context (Project background): Cont’d

describe the social, economic, political and

cultural background from which the project is
initiated.
Beneficiaries (Target Groups):
In this part define the target groups and show
how they will benefit from the project.
Project justification:
Rationale should be provided for the project.
It includes:
 The implementing organization
 Problem statement
 Priority needs

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 Cont’d

Project Goals and Objectives :

Project goals, purpose and desired
outcome along with objectively
verifiable indicators
Project Description:
This part shall include the specific
detailed description of each activity.

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 Cont’d
Human Resources:
This part of the project should describe the management and
implementation teams, their experience and responsibilities.
Project feasibility:
This part of the project shows the feasibility of the project.
Overall project value:
This part shows the added value of the project to different
institutions and the other beneficiaries.

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 Cont’d

Risks of the Project:

include the main risks (may occur) and the tools could be
used to overcome them.
Implementation Plan:
describe activities and resource allocation in as much detail
as possible.
 Activity plan (schedule) based on a simple table or Gantt chart.
 Resource plan/based on budgetary format

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 Cont’d

Project Performance indicators:

In this part, specify the major project
performance indicators (SMART and
Measurable project performance indicators).
Monitoring and Evaluation (M&E)
Plan:
specify how you will monitor the progress of
activities and how you will be able to evaluate
the accomplishment of the overall goal of the
project
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 Cont’d

Reporting: The schedule of project progress and

financial report could be set in the project proposal.
Annexes [if any]: for additional detailed information

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Thank you!!!