Unit – II

Project Identification & Selection

 Project Identification
Project Identification and selection is a process to assess each project idea and select the
project with the highest priority.

The process of identifying a candidate idea for developing into a project is called Project
Identification. This is a systematic process. Project Identification process starts with the
generation of a product idea. In order to select the most promising project the entrepreneur
needs to generate a few ideas about the possible projects.
Project Selection
Project selection starts from where project identification ends. Project selection is a
careful study of each project idea in detail and choosing one of them for further
consideration and development. It is not too difficult to find good projects in need of
investment or other assistance.

Project identification & selection typically starts with generating ideas. The biggest
challenge is to select the ideas that have the highest chance of becoming beneficial
projects. To help in this process, practitioners can use an organized approach for
narrowing down and moving forward with the ideas that can be best converted into
projects.
Project Identification Process

• Generation of Ideas
• Monitoring the Environment
• Corporate Appraisal
• Profit Potential of Industries: Porter Model
• Scouting for Project Ideas
• Preliminary Screening
• Project Rating Index
• Sources of positive net present value
Project Identification Process
1. Generation of Ideas:
• Stimulating the flow of ideas
• Clear articulation of objectives
• Fostering a conducive climate
3. Monitoring the Environment
• Economic Sector
• Governmental Sector
• Technological Sector
• Socio – Demographic Sector
• Competition Sector
• Supplier Sector
 Project Identification Process
3. Corporate Appraisal
• Marketing & Appraisal
• Production & Operations
• Research & Development
• Corporate Resources & Personnel
• Finance & Accounting

4. Profit Potential of Industries: Porter Model

• Threat of new entrants
• Rivalry among existing firms
• Pressure from, substitute products
• Bargaining power of buyers
• Bargaining power of sellers
 Project Identification Process
5. Scouting for Project Ideas
• Analyze the performance of existing industries
• Examine the inputs & outputs of various industries
• Review imports & exports
• Study plan outlays & governmental guidelines
• Investigate Local Materials and resources
• Analyze Economic and Social Trends
• Study the Technological Developments

6. Preliminary Screening
• Compatibility with the Promoter
• Consistency with governmental priorities
• Availability of inputs
• Adequacy of market
• Reasonableness of cost
• Acceptability of risk level
 Project Identification Process
7. Project Rating Index
• Identify factors relevant for project rating
• Assign weights to these factors
• Rate the project proposal on various factors, using a suitable rating scale
• For each factor, multiply the factor rating with the factor weight to get the factor score
• Add all the factors scores to get the overall project rating index

8. Sources of Positive Net Present Value

• Economies of Scale
• Product Differentiation
• Cost advantage
• Marketing Reach
• Technological Edge
• Government Policy
Project Selection Approaches
Numerical Models
• Check List Model
• Simplified Scoring Model
• The Analytical Hierarchy Model
• Profile Models

Financial Models
• Pay Back Period
• Net Present Value
• Accounting Rate of Return
• Internal Rate of Return
• Profitability Index
What is Project Planning??
The planning phase is when the project plans are documented, the project deliverables and
requirements are defined, and the project schedule is created. It involves creating a set of
plans to help guide your team through the implementation and closure phases of the project.
The plans created during this phase will help you manage time, cost, quality, changes, risk,
and related issues.

The project planning phase is often the most challenging phase for a project manager, as
you need to make an educated guess about the staff, resources, and equipment needed to
complete your project.
Elements of Project Planning
Need for Project Planning

• Establish business requirements

• Establish cost, schedule, list of deliverables, and delivery dates
• Establish resources plans
• Obtain management approval and proceed to the next phase
 Project Planning Process
• Scope Planning – specifying the in-scope requirements for the project to facilitate
creating the work breakdown structure
• Preparation of the Work Breakdown structure – spelling out the breakdown of the project
into tasks and sub-tasks
• Project schedule development – listing the entire schedule of the activities and detailing
their sequence of implementation
• Resource planning – indicating who will do what work, at which time, and if any special
skills are needed to accomplish the project tasks
 Project Planning Process
• Budget planning – specifying the budgeted cost to be incurred at the completion of
the project
• Procurement planning – focusing on vendors outside your company and
subcontracting
• Risk management – planning for possible risks and considering optional contingency
plans and mitigation strategies
• Quality planning – assessing quality criteria to be used for the project
• Communication planning – designing the communication strategy with all project
stakeholders
 Work Break Down Structure
The WBS divides the project into its component sub steps in order to begin establishing critical
interrelationships among the activities.
According to the Project Management Body of Knowledge (PMBoK), a Work Breakdown Structure
(WBS) is “a deliverable-oriented grouping of project elements which organizes and defines the total
scope of the project. Each descending level represents an increasingly detailed definition of a project
component. Project components may be products or services.” To rephrase this PMBoK definition, the
Work Breakdown Structure is a process that sets a project’s scope by breaking down its overall
mission into a cohesive set of synchronous, increasingly specific tasks. The result is a comprehensive
document reflecting this careful work.
 Purpose of WBS

1. It echoes project objectives. Given the mission of the project, a WBS identifies the main work activities that
will be necessary to accomplish this goal or set of goals. What gets mentioned in the WBS is what gets
done on the project.
A. Goal Setting Using WBS

Project
Project Start A B C D Completion

Goal 1 Goal 2 Goal 3 Goal 4

B. Goal Setting Without WBS

Project Start ? Project Completion

`
 Purpose of WBS
2. It is the organization chart for the project. Organization charts typically provide a way to understand
the structure of the firm (who reports to whom, how communication flows evolve, who has
responsibility for which department, and so forth). A WBS offers a similar logical structure for a
project, identifying the key elements (tasks) that need attention, the various subtasks, and the logical
flow from activity to activity.
3. It creates the logic for tracking costs, schedule, and performance specifications for each element in
the project. All project activities identified in the WBS can be assigned their own budgets and
performance expectations. This is the first step in establishing a comprehensive method for project
control.
 Purpose of WBS
4. It may be used to communicate project status. Once tasks have been identified and responsibilities
for achieving the task goals are set, you can determine which tasks are on track, which are critical and
pending, and who is responsible for their status.
5. It may be used to improve overall project communication. The WBS not only dictates how to break
the project into identifiable pieces, but it also shows how those pieces fit together in the overall
scheme of development. As a result, team members become aware of how their component fits into
the project, who is responsible for providing upstream work to them, and how their activities will
affect later work. This structure improves motivation for communication within the project team, as
members wish to make activity transitions as smooth as possible.
 Purpose of WBS
6. It demonstrates how the project will be controlled. The general structure of the
project demonstrates the key focus that project control will take on. For example, is the
project based on creating a deliverable (new product) or improving a process or service
(functional efficiency) within the firm? Either way, the WBS gives logic to the control
approach and the most appropriate control methods.
 Project Charter

The statement of work (sow) is a detailed narrative description of the work required for
a project. SOWs contain information on the key objectives for the project, a brief and
general description of the work to be performed, expected project outcomes, and any
funding or schedule constraints.
 Project Charter
A Statement of Work is an important component of conceptual development, as it identifies a need
within the firm or an opportunity from an outside source, for example, the commercial market. Some
elements in an effective SOW include:
1. Introduction and background—a brief history of the organization or introduction to the root needs
that identified the need to initiate a project. Part of the introduction should be a problem statement.
2. Technical description of the project—an analysis, in clear terms, of the envisioned technical
capabilities of the project or technical challenges the project is intended to resolve.
3. Time line and milestones—a discussion of the anticipated time frame to completion and key
project deliverables (outcomes).
 Project Charter
After a comprehensive SOW has been developed, many organizations establish a project charter. The project
charter is defined as a document issued by the project initiator or sponsor that formally sanctions the existence
of the project and authorizes the project manager to begin applying organizational resources to project
activities.
In effect, a charter is created once the project supporters have done the needed “homework” to verify that there
is a business case for the project, that they fully understand the elements of the project (as demonstrated
through the SOW), and have applied more company-specific information for the project as it begins. The
project charter demonstrates formal company approval of the project and that can only occur when all
necessary information during conceptual development has been satisfied. For some organizations, the formal
signoff of the SOW constitutes the project charter, while other organizations require that a separate document
be created
Advantages of Project Charter
1. It gives the project manager the authority to complete the project.
2. It explains the project’s existence.
3. It shows management’s support for the project.
4. It defines the outcome.
5. It aligns the project with the organization’s objectives.
6. It gives team members a transparent reporting system.
7. It saves you from scope creep and gold plating.
8. It helps you avoid disputes during the project.