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 02/09/2024 2
Introduction cont’d
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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Introduction cont’d
 Screening project idea: An initial review of project
ideas and concepts to see if they should be advanced or
cast off 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

(musical) with projects, as they are roots of needs and
wants.
 That is project ideas are generated in order to satisfy the

needs and wants of the beneficiaries

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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Generation of project idea cont’d
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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Generation of project idea cont’d
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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Generation of project idea cont’d
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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Generation of project idea cont’d
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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Generation of project idea cont’d
1. Project Ideas from Government Policy and Plan:
 project idea can be obtained from
government development plan documents
such as:
 National policies, strategies and priorities
 National, sectoral, sub–sectoral, or regional plans and
strategies supplemented by special studies
 General surveys, resource potential surveys, regional
studies, master plan and statistical publications
 Government decision to correct social and regional
inequalities or to satisfy basic needs of the people
through development projects.

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CONT…
 Unusual events such as droughts, floods, earth –
quakes, hostilities.
Information contained in such types of seasonal
papers provide clear guidelines to individuals or
organizations who wish to start industrial projects.

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CONT…
2. Project ideas from Technical Specialists:
For many industrial projects, ideas will usually tend to
come from technical specialists who by virtue of their
experience and/or research findings will give useful
information.
3. Project Idea from Local Leaders:
For community or social projects, local leaders will
usually have important ideas, which they, together with
the local people, have identified as being important in
improving the welfare of the people
4. Project Ideas from Entrepreneurs
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CONT…
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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CONT…
1. Analysis of the Performance of Existing
Industries:
a study of existing industries in terms of their profitability
and capacity utilization can indicate promising
investment opportunities which are profitable and
relatively risk-free
2. Examination of the Input-outputs of Various
Industries
 when the suppliers location is far away from the

industries
 when several firms produce the component /parts

internally
 Adding value through further processing of the main

outputs, by-products, waste products.

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CONT…
3. Review of Imports and Exports:
 potential for import substitution and export

possibilities of various product.

4.Investigation of Local Materials and
Resources:
 Various ways of adding value to locally available

materials may be examined.

5. Analysis of Economic and Social Changes
 Changing economic conditions and consumer

preferences provide new business opportunities.

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CONT…
 Study of New Technological Developments
 exploring the Possibility of Reviving Sick Units
 Drawing Clues from Consumptions abroad
 Identification of unfulfilled Psychological Needs

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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Project Concepts and Profiles cont’d
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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Project Concepts and Profiles cont’d
Beneficiaries and Stakeholders Best regards,
 Who will benefit from the project?
 Who has a share or 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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Project Concepts and Profiles cont’d
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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Project Concepts and Profiles cont’d
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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CONT…
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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 CONT…
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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CONT…
Once the project rating index is determined, it
is compared with a pre – determined value to
judge whether the project is worthwhile or not.

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 U ! !
Y O
N K
H A
T

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