Chapter 2

Project Identification
and Selection

Tesfaye Debela (PhD)

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Contents and Session Objectives
 Contents
◦ Conceptual Clarification
◦ Sources of project ideas
◦ Steps in Project Identification and Selection
◦ Group Exercises
 Session objectives
◦ After this session, You will be able to:
• identify project ideas to solve a problem or
exploit opportunities, and
• apply project identification and selection
methods.

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Reflection
 What are the sources for project ideas?
 How can potential projects be identified?
 Is problem identification the same as

project identification?
 Who identify projects?

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 Project Identification
 Project identification is the initial phase of the
project cycle.
- It begins with the conceiving of ideas or
intentions to set up a project.
- national development plans and strategies are
also translated into specific investment projects

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 Sources of project ideas:
 The community,
 researchers,
 experts,
 local leaders,
 Policy makers,
 entrepreneurs,
 donors,
 NGOs,
 Government policy priorities,

 unusual events,

 external threats,

 unsatisfied demands,

 underutilized natural resources, etc.

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 Project Identifications
 Who identifies projects?
◦ Various organizations, whether local or foreign,
state owned or private, government ministries,
development banks, interest groups, NGOs and
individual experts can identify projects.
 two major approaches to project identification
◦ Top-down approach
◦ Bottom-up approach

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 Top-Down Approach
 Projects are identified based on demands from national or
International stakeholders or International conventions.
 For example:
◦ international conventions (such as Kyoto Protocol for climate
change)
◦ international institutions that have determined particular
priorities
◦ national policy makers identifying projects that pertain to
party manifestos and/or national plans.
 Advantages of Top-Down Approach
◦ Serves as a rapid response to disasters like floods, war
outbreak, etc. Due to limited time and chance to consult the
beneficiaries.
◦ It can be effective in providing important services like
education, health, water, roads etc.
◦ It can contribute to wider national or international objectives
and goals
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 Limitations of Top-Down Approach
 Does not help in modifying strongly established
ideas and beliefs of people.
 Assumes external individuals know better than the
beneficiaries of the service.
 Communities have little say in planning process
 Does not help in local human resource development.
 Community develops dependency syndrome on
outside assistance and does not exploit their own
potential.
 The development workers (change agents) become
stumbling blocks to people-led development

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Bottom-Up Approach
 community/ beneficiaries are encouraged to
identify and plan the projects themselves with or
without outsiders.
Advantages of Bottom-Up Approach
 Interveners accomplish more with limited
resources since people tend to safeguard what
they have provided for themselves.
 Develops people’s capacity to identify problems
and needs and to seek possible solutions to them.
 Provides opportunities of educating people.
 Helps people to work as a team and develop a
“WE” attitude - makes project progressive and
sustainable.
 Resources are effectively managed; dependence
reduces, there is increased equity, initiative,
accountability, financial and economic discipline.
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 Limitations of Bottom-Up Approach
 Not always effective for projects that
require urgency to implement
 Time-consuming and requires patience and
tolerance.
 People sometimes dislike this approach
because they do not want to take
responsibility for action.
 The agency using this approach is never in
control and cannot guarantee the results it
would want.
 The priorities of communities may not fit
with national or international priorities that
seek to have a broader impact.

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 Project Identification in Both
approaches
Involves needs assessment
- collecting, processing and analyzing data on
problems/needs of communities
 Review of secondary data
- Look at books, survey reports/ research papers,
publications, media reports, internet etc.
 Collecting and analyzing primary information
• Interviews
• Community mapping
• Focus Group Discussions
• Other methods

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Questions to be addressed in
a project:-
 What is the major objective of the project within specified
time?
 What is the basis for the demand or need for the
goods/services to be produced by the project?
 What problem or opportunity is the project addressing?
 How does the project contribute to the wider goals of the
sector/organization/ region?
 What alternative ways of addressing the
problem/opportunity/ have been considered?
 Why is the proposed project the most appropriate way of
addressing the problem/opportunity?
 What is the approximate cost and time schedules of the
project?

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Questions cont’d…
 Who are the major stakeholders and
beneficiaries of a project?
 Which institution is the most appropriate

for implementation?
 Are there additional or special

circumstances relevant to the project?

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Methods in Project identification
and selection:
 Stakeholders analysis
 SWOT analysis
 Problem analysis
 Objective analysis
 Alternative Tree Analysis

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a) Stakeholder analysis?

 Stakeholder is any individuals, group or

organization, community, with an interest
in the outcome of a program/project.
 Stakeholder’s could be targeted groups/

beneficiaries, negatively affected groups,

decision makers, funding agencies,
implementing agencies, community leaders,
potential opponents and supporting
groups, etc.

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Purpose of stakeholders analysis: -

 to identify, assess and develop an idea/opportunity

with a view to perceived needs and how well it fits into
the organization's programs and strategies
 To identify those groups who, directly or indirectly,
will affect or be affected by a project.
 To determine, through consultation, the issues,
concerns and needs of different stakeholders.
 To estimate the probable impact which various
stakeholders will have on the project.
 To identify measures to enhance stakeholder support
for the sustainable development objectives of the
project.

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Stakeholder Analysis promotes the three necessary
conditions for the effective implementation of a
project:-
• Awareness/ Commitment: Obtaining
stakeholders under standing and belief in the
objectives and implementation strategy of the
project.
• Capability: that stakeholders believe they can
cope with and benefit from the changes which
the project is intended to bring
• Inclusion: that stakeholders feel they are valued,
consulted and part of the change process which
the project represents
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b) SWOT Analysis
 SWOT analysis is a tool for institutional appraisal and a
brainstorming exercise in which the representatives of the
organization participate fully.
 Purpose:
◦ To assess the performance and capacity of the participating units,
divisions of organization.
◦ Each participating unit has to undertake SWOT analysis.
 SWOT stands for:
◦ Strengths - the positive internal attributes of the organisation
◦ Weaknesses - the negative internal attributes of the organisation
◦ Opportunities - external factors which could improve the
organisation’s prospects
◦ Threats - external factors which could undermine the
organisation’s prospects

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c) Problem Analysis
 Begins with identifying a core problem. A problem-
is an obstacle, impediment, difficulty or challenge,
gap or any situation that needs solution.
 Problems Analysis visually shows the causes and

effects of existing problems in the project area, in

the form of a Problem Tree. It helps to clarify the
relationships among the identified problems.
 Purpose: to identify major problems and their

main causal relationships.

 Output: a graphical arrangement of problems

differentiated according to ‘causes’ and ‘effects’

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Steps in Undertaking Problem Tree
 Identify a “core” or central problem
 List all the problems related to or stemming

from the core problem

 Determine which related problems are causes

and which are effects of the core problem

 Arrange the problems in a cause-effect

heirarchy around the core problem

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Problem Tree
EFFECT

CAUSE

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Problem tree Analysis
 Relies on:
◦ Group-based inter-action eg. Workshop format
◦ Participation of key stakeholders
◦ Process facilitation
◦ Achieving consensus on problems, causes and
effects

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Example 1: Subject of the workshop is food security,
the possible problems mentioned in relation to this
are:
 Food production on hills  Dikes are degraded
decreasing  Soil fertility on hill
 Ethnic clashes in slopes is decreasing
neighboring districts  Soil erosion on hill
 Food shortages slopes
 High incidence of  Irregular supply of
malnutrition inputs for rice
 Canals are blocked production
 Rice production in low  High immigration rates
lands decreasing  Irrigation water does
 Poor maintenance of not reach fields in
irrigation facilities desired quantity

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 High incidence

Problem Tree of Malnutrition

Food shortages

Rice production in
Lowlands decreasing Food Production High immigration
on hills decreasing Rates
Effect

Irrigation water does Irregular supply of Soil fertility on Ethnic clashes in

not reach field in input for rice hill slopes neighboring
desired quantity production is decreasing districts

Canals are Dikes are Soil erosion

blocked degraded on hill slopes

Cause

Poor maintenance system

for irrigation facilities
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d) Objective Tree Analysis
 An objective tree is a technique for identifying the
objectives that will be achieved as a result of
solving the problems cited in the problem tree.
 cause-effect relationships in problem tree are
turned into means-ends linkages in Objective tree
 The ‘negative situations’ of the problem tree are
converted into solutions, expressed as ‘positive
situations’. Problem statements converted into
positive statements
 Check the means-ends relationships to ensure
validity and completeness of the hierarchy

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 Incidence of
Malnutrition reduced
Diagram of objectives
Improved Food
situation

Rice production Food production

in low lands Lower
on hills increased immigration
increased
rates

Sufficient irrigation Regular supply of Soil fertility on Less ethnic

water reaches the inputs for rice hill slopes clashes in End
fields production increased neighboring
districts

Canals Dikes are Soil erosion on hill

cleared upgraded slopes reduced

Means

Maintenance
irrigation facilities
improved

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e) Alternative Tree Analysis
 is a process in which specific project strategies are
identified and selected from among the objectives and
means raised in Objectives Analysis, based upon
selection criteria.
 The aim of alternative strategy analysis is division of
the objectives tree into more consistent smaller sub-
units
 Each of the sub-units of the objective tree can
represent an alternative strategy for the future project.
 The project objectives set the framework for the
strategy of the project.

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Criteria for selecting the alternative:
 RELEVANCE: the strategy corresponds to the
needs of the stakeholders.
 EFFECTIVENESS: the lower level objectives of

the strategy will contribute to achievement of

the project purpose.
 EFFICIENCY: cost-effectiveness of the

strategy in transforming the means into

results.
 CONSISTENT with development policies
 SUSTAINABILITY of the projects

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 Incidence of
Malnutrition reduced
Diagram of Alternatives
Improved Food
situation

Rice production Food production

in low lands Lower
on hills increased immigration
increased
rates

Soil fertility on
Sufficient irrigation Regular supply of hill slopes
water reaches the inputs for rice increased
fields production
Less ethnic
clashes in
neighboring
districts
Canals Dikes are
cleared upgraded Soil erosion on hill
slopes reduced

Maintenance
irrigation facilities
improved
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 Alternatives for decision:
 Let us assume that agricultural
inputs are provided by one NGO, soil
conservation activities are already in
place by agriculture office, and
conflict is on the process to be
resolved by government officials in
the area. Therefore, the project will
focus on the irrigation system
alternative
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Group Exercise 1
 Core problems:
 Ineffectiveness of Trainings in the civil services
 Problem of Primary Education in Nomadic area
 Problem of Potable Water in X Kebele
 Problem of car Accident in Addis Ababa
 Problem of transportation in Addis Ababa
 Rampant corruption in the country
 Instruction:
◦ Prepare problem and objective trees
◦ Select one or two alternative solution

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Economic Analysis
 Is an assessment of a project’s costs and benefits
from the view point of the national economy or the
society.
 Rationale for Economic Analysis is that Net private
benefits and net social benefits are different due to
the existence of:
◦ market imperfections,
◦ externalities
◦ income redistribution,
◦ Taxes and subsidies
◦ Etc.
 In such circumstances, social cost analysis must
depend on shadow prices (instead of market prices)
to measure the net benefit to the society.
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Economic Analysis
 Shadow prices is the price used for analysing the cost and
benefit of a project when the market price is felt to be a
poor estimate of the economic value of a project.
 Shadow price measures the value of commodity from
point of view of the society or the economy of a nation.
 After estimating the shadow prices, we measure the
viability of the project through the normal process of
calculating NPV, IRR or CBR.

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Financial Vs Economic analysis
Financial
 Appraise the project from the
view point of an entrepreneurs,
investor or financier.
 Covers only private costs and
benefits
 Taxes are treated as costs and
subsidies as a return.
 Interest paid to external
suppliers of money may be
deducted to obtain the stream
of benefit available to the
owner of the project.
 The overriding objective is
financial viability (i.e. making
profit) based on market price.
Economic
 Appraise the project from the
view point of macro or national
economy or its contribution to
the society.
 It takes into account social costs
and benefits.
 Taxes and subsidies are treated
as transfer payments.
 Interest on capital is never
separated and deducted from
gross return because it is part of
the total return to the capital
available to the society as a
whole.
 The objective is economic
viability [social benefits] based
on shadow price.
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 Therefore, market prices are often distorted
by:
 Taxes
 Monopolistic/Oligopolistic measures
 Subsidies
 Rent, Interest
 Quotas
 Regulatory measures
 Protection, etc
 And must be adjusted to reflect social value

of the project i.e., shadow price

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 In economic analysis we consider the benefits
of the project to the society such as:
 Employment creation
 Foreign Exchange generation or saving
 Contribution to different sectors: such as
health, education, etc.
 Multiplier effect (on other economic
variables in the economy)
 Linkages (both forward and backward
linkages)
 Economies and diseconomies of scale
 Externalities, etc.

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Conversion factor
 We use conversion factor to change the
market price to shadow price.
 Conversion Factor: is a number, usually less

than 1, used to multiply the domestic market

prices of goods/services and to get the
equivalent border prices so as to correct the
distortions in domestic prices of the same
goods/services.
 Conversion Factor is a ratio of shadow price

(SP) to market price (MP).

SP
CF 
MP SPMP * CF
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