CHAPTER THREE

PROJECT IDENTIFICATION

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 Introduction
The identification of promising project ideas is the
first step towards establishing a successful venture
 The identification of opportunities for project

(investments) requires:-
Understanding of the environment in which
one operates
sensitive to emerging investment possibilities
 imaginative analysis of tangible and
intangible factors

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This stage is about finding potential projects that will
result in positive net present value or that provide benefits
for the society
PHASES OF PROJECT IDENTIFICATION
There are four key phases of project identification. These
are:-
 Generation of project idea: The generation of project

ideas by formal and informal institutions and

individuals.
 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 ranking and prioritization of project ideas.

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 Screening project idea: An initial review of
project ideas and concepts to see if they should
be advanced or abandoned at an early stage.
 Prioritization of project idea: The ranking

and selection of project idea against a set

of criteria to identify the “best projects to
move actively into preparation stage and
development.

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Generation of project idea
 ‘Necessity is the mother of invention’ sounds rhythmic
with projects as they are roots of needs and wants.
 That is project ideas are generated in order to satisfy the

needs and wants

Stimulating the flow of ideas
 To stimulate the flow of ideas the following are approach

or mechanism are found to be very much helpful:-

SWOT Analysis
Clear Articulation of firms Objectives
Set up of working environment

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SWOT Analysis
 An existing company which seeks to identify new

projects opportunities should undertake 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 profitably exploited by it.
 Periodic SWOT analysis facilitates the generation of

ideas.

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Clear Articulation of Objectives of a Firm
 Firms objectives may use one 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
are helpful in guiding the efforts of employees
and encourage them to think more imaginatively

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Fostering productive working environment
 In order to tap the creativity of people and to harness

their entrepreneurial urges, productive organizational

climate has to be fostered.
Monitoring The Environment
 There are multiple sources of project idea.
 Good project idea, the key to success
 So a wide variety of sources should be trapped to

identify them
 Project idea can be identified by monitoring the

macro level and micro level environment

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Macro Level Source of project Idea
 Macro sources otherwise called Sector Sources.
 It will require an analysis of the overall
investment potential in countries
 It refers to the source of project idea, which is

reflected from national, regional and Sectorial

level sources.
 At a higher macro-level, project ideas could be

obtained from various sources as mentioned

below

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1. Project Ideas from Government Policy
and Plan
2. Project ideas from Technical Specialists
3. Project Idea from Local Leaders
4. Project Ideas from Entrepreneurs

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B. Micro Level Source/Specific
Opportunities Studies/Enterprise
Approach
The Micro Approach is mainly concerned
with a review of investment ideas of
industries.
Micro – Level project ideas can be
generated from various sources,
including:

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1. Analysis of the Performance of Existing Industries
2. Examination of the Input-outputs of Various
Industries
3. Review of Imports and Exports
4. Investigation of Local Materials and Resources
5. Analysis of Economic and Social Changes
6. Study of New Technological Developments
7. exploring the Possibility of Reviving Sick Units
8. Drawing Clues from Consumptions abroad
9. Identification of unfulfilled Psychological Needs

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2. Project Concepts and Profiles
 Once a project idea has been conceived,

the next stage is to describe the idea so

that it can be prioritized and move on to
the next stage in the process.
 This may involve the preparation of a

project identification report or project

concept or profile

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Questions and Project Profile or Concept
Justification and Purpose
 What goal is the project contributing to?
 What is the purpose of the project, what

does it intend to achieve?

 What problem is the project addressing?
 What is the justification of the project?
 What demands, needs or opportunities is the

project addressing?

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Beneficiaries and Stakeholders Best regards,
 Who will benefit from the project?
 Who has a share or s take in the project?
 How have project beneficiaries and other stakeholders

participated in the identification of 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?

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Policies and Plans
 How does the project proposal fit into any sector

or regional plans?
 Does the project fit into current policies?
 What are the likely major positive and negative social

impacts of the project?

 What are the likely positive and negative
environmental impacts 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?

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Risks
 What are the chances of the project achieving

its objective?
 What are the main risks associated with the

project?
 What assumptions have been made, e.g., what

support is needed from others?

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3. Preliminary Screening

 Some kind of preliminary screening is

required to eliminate ideas which are not
promising.
 In the first instance, all possible project

ideas are listed (identified). Then some of

them are eliminated and few projects are
screened for further analysis.

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4. Project Rating Index (Prioritization & Ranking)
 When a firm evaluates a large number of project ideas
regularly, it may be helpful to simplify the process of
preliminary screening
 For this purpose, a preliminary evaluation may be

translated into a project rating index

Steps
1. Identify factors relevant for the project rating
2. Assign weights to these factors
3. Rate the project proposal on various factors
4. For each factor multiply the factor rating with the
factors weight to get the factor score
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5. Add all the factor scores to get the overall
project-rating index.

6. Once the project-rating index is

determined, it is compared with a pre-
determined hurdle value to judge whether
the project is prima facie worth while or not.

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Example of project rating index
Assume that the following factors are identified to be relevant for
project rating
Factors Factor weight

- Technical know-how 0.20

- Input availability 0.15
- Reasonableness of cost 0.20
- Adequacy of market 0.05
- Stability 0.10
- Dependence of firm’s strength 0.20
- Consistency with government priorities 0.10
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If the firm uses five rating scale, determine the rating index for
the project
Factor Factor Rating
Factor
weight Score
5 4 3 2 1

Technical know-how 0.20  0.80

Input Availability 0.15  0.45
Reasonableness of costs 0.20  1.00
Adequacy of market 0.05  0.20
Stability 0.10  0.50
Dependence of firm’s strength 0.20  0.40
Consistency with gov’t priorities 0.10  0.50
Rating index 3.85
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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.

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