CHAPTER THREE

Project Identification/Idea Generation

 After studying this chapter, you should be able to:

 Project identification
 Source of project ideas
 Who identify projects
 Prioritizing and ranking
 Explain how Project Rating Index (PRI) is calculated
 Risk analysis
 What makes a good project
 Identification
 The major focus in this step is:
o finding project ideas or identifying needs or demands for
projects
 is the starting-point in a series of activities in project life
 Is the first stage in project cycle is to identify an idea, which enable
to launch a project.
 Projects identification amounts to finding projects, which could
contribute toward achieving specified development objectives. Or
In general; the first stage in the project cycle is to find potential
projects
 Cont….
 This phase may take two forms:
 If the project is largely a private venture in a widely market
economy context the initiating entity will define
o the concept, expectation and objectives of the project.
 If the project idea emanate form government agencies in the context
of government development plans, in this case
o sectoral information (i.e. the direct and indirect demands of
sectors) is an important source of identification
 Cont….
 At identification stage there could be a number of alternatives that
could be examined.
 The project idea may emerge from:
Challenges and problems to be solved

Ample resources to be utilized

Government development efforts or

 Entrepreneurial efforts of investors.

 Cont….
 The identification of project ideas is based on several aspects
of development.
Need: a need assessment survey may show the need for
intervention
Market demand: domestic or overseas
Resource availability: opportunity to make available resources
more profitable
Technology: to make use of available technology
Natural calamity: intervention against natural calamity such as
flood or drought
Political considerations
 In General:
 The needs of idea generation may be social, political, economic,
commercial, technical or environmental issues that drives the
actions of entrepreneurs to pursue some creative actions.
 To stimulate the flow of ideas, the following are helpful:

1. SWOT Analysis :
o SWOT analysis represents a conscious, deliberate and systematic
effort by an organization to identify their internal strengths and
weaknesses and the opportunities and threats in the environment.
o This analysis helps to identify opportunities that can be profitably
exploited by the organization in light of its strength and weakness.
 SWOT Analysis
Strength
• Things your company does
well
• Qualities that separates from
your from your competitors
• Internal resources such as
Threats skilled, knowledgeable staff
• Emerging • adequate and enough
competitors resources and technologies Weakness
• Changing • Things your
regulatory company lacks
environment • Things your
• Negative competitors do
better than you
press/media • Resource
coverage Opportunities limitations
• Changing • Unclear unique
• Undeserved markets for
customers selling
attitude towards specific products proposition
your company • Few competitors in your
area
• Emerging need for your
products or services
• Press/media coverage of
your company
 Cont….
2. Clear articulation of objectives
o A clear articulation and prioritization of objectives of an
organization helps in canalizing the efforts of employees and
helps them to think more imaginatively

The operational objectives of the firm may include

1. Cost reduction
2. Productivity improvements
3. Increase in capacity utilization
4. Improvement in contribution margin
5. Expansion into promising fields
 Sources of Project Ideas
Q) What are the sources of Project ideas?
o Analyze the Performance of Existing Industries
o Profitability and capacity utilization- potential for further
investment
o Examine the Inputs and Outputs of Various Industries
o Inputs
o Outputs
o Examine Trend Import and Export
o Study plan outlays and Governmental Guidelines
o Investigate Local Materials and Resources
o Identify Unfulfilled Psychological Needs
 Cont…
 resource based

 market based

 need-based

 local leaders and national development strategies

 Diversification

 Import substitution and export possibilities

 Environmental impact

 Expansion of existing capacity, etc.

 Macro and Micro Sources
Macro
• State of the economy • Manifestoes of party in • Emergence of
• Overall rate of growth power and the opposition new technologies • Population
• The growth rate of primary, • Attitude towards investors • Access to trends, shift in
secondary and tertiary • Restrictions on areas of technical know- population
sectors. investment by private sector how, foreign as among
• Projected national income • Restrictions on imports well as indigenous regions
trends, GNP trends • Transport • Age shifts in
• Projected industry output, • Industry policy
• Import and export policies • Product population
projected price movements processing
• Trends in fiscal, credit and • International trade • Educational
• Use of computers profile
monetary policies regulation
• Cyclical fluctuation of the • Government programs and and other • Employment
economy
automations of women
projects
• Corporate taxation and • Receptiveness on •
• Tax framework Attitude
incentives the part of the
• Subsidies, incentives towards
• Provisions of infrastructure industry
• Financing norms consumption
• Inflation rate, interest rate, and
• Lending conditions of
exchange rate
financial institutions and investment
• Unemployment level
commercial banks • Changes in
• Linkage with the world
• Environmental protection ethnic
economy
• Balance of payment (trade laws composition
surplus/deficit) • Control over prices and • Customs,
• Budget deficit/surplus distribution of goods beliefs and
values
Governmental
Economic (political and legal)
Technological sector
Social &
Sector sector Cultural Sector
 Macro and Micro Sources
Micro
• Number of firms in the industry • Availability and cost
and the market share of the top of raw materials and
few sub-assemblies
• Degree of homogeneity and • Availability and cost
differentiation among products of energy
• Exit and Entry barriers • Availability and cost
• Comparisons with substitutes in of money
terms of quality, price and • Exit and entry of
functional performance suppliers
• Marketing policies and practices • Power of suppliers
• Capacity utilization
• Product life cycle
• Foreign opportunities

Competition sector Supplier Sector

 Who identify project idea?
 Individuals
 Groups of individuals (community)
 Local leaders
 NGOs
 Policy makers
 Planners
 International development agencies
 Government pronouncements Etc.
 Screening Potentially Promising Ideas
 How do we screen Promising ideas?
1. Compatibility with the Promoter (Entrepreneur)
o Interest, personality, and resources of the entrepreneur.
2. Consistency with Governmental Priorities
o Project idea should go in line with the national goals and
governmental regulatory framework.
3. Availability of Inputs
4. Adequacy of the Market
 Total present domestic market
 Competitors and their market shares
 Analyze price profile of the product such as competitive
products
 Sales and distribution system
 Projected increase in consumption
 Barriers to the entry of new units, etc…
 Screening Potentially Promising Ideas
5. Reasonableness of Cost
o Cost of Material input
o Labor Costs
o Factory Overheads
o General administrative expenses
o Selling and distribution costs, etc.
 Screening Potentially Promising Ideas
 Project preliminary screening is like pouring all the ideas into a
filtering funnel.
o In the first instance, all possible project ideas are listed
(identified);
o Then some of them are eliminated and few projects are screened
for further analysis;
o After detailed study of few limited projects, one project will be
selected at the end.
 Project Rating Index (PRI)
 When a firm evaluates a large number of project ideas regularly, it
may be helpful to streamline the process of preliminary screening.

 For this purpose, a preliminary evaluation may be translated into a

project rating index.

 The steps involved in determining the project rating index are

as follows:
 Project Rating Index (PRI)
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 factor score.
Add all the factor scores to get the overall project rating
index.
 Project Rating Index (PRI)
 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
 Project Rating Index (PRI)
For example: Assume the following data for Project idea A and
Project idea B, and select prima facie project based on rating index
after giving rate for the project proposal on various factors.
 Project Rating Index (PRI)
Factor Facto Rating Factor
r 5 4 3 2 1 Score
weigh
t

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
What is the purpose of rating index?
o PRI enables to identify the projects (from the list) that can be studied
further in detail.
o If the policy of the firm is to further study the projects whose rating index
is 3.50 and above, the above project will enter the next phase of the project.
 Project Constraint and Risk
Q) Is that project risk and constraints are the same?
 Constraints are those things that are imposed on the project
knowingly or unknowingly.
 The project has three major constraints; namely,
1. Cost: It refers to the overall cost of the work
2. Schedule: It refers to the time the project will take
3. Scope: It refers to the project deliverables or outputs and the
quality of the work
NB: Project constraints and project risks are not the same.
o Constraints exist throughout the project life. The project will be
operated under these constraints.
 Risk
 Risk is any unexpected event that can affect your project for better
or for worse. Or
 Is a situation in which there is a chance of loss and gain, while
 Uncertainty is a condition where you are not sure about the future
outcomes
o Risk may happen in project work but it is very difficult to write
down any specific universal rules for managing all risks.

So, Risk management is important because it enables to minimize or

even avoid the risk that can cost huge money to correct.
 Risk
 When determining what is a risk in project management, consider
these five elements:
1. Risk event: What might happen to affect your project?
2. Risk timeframe: When is it likely to happen?
3. Probability: What’s the chances of it happening?
4. Impact: What’s the expected outcome?
5. Factors: What events might forewarn or cause the risk event?
So, you should prepare a risk assessment/analysis to get a better
understanding of the kinds of risks your project is facing and their
possible consequences.
 Risk Management
 Risk analysis and risk management is a process that allows
individual risk events and overall risk to be understood and
managed proactively, optimizing success by minimizing
threats and maximizing opportunities and outcomes.
 The identification, management and analysis of risk involves
several phases. These phases are described below:
1. Identifying Risk. Risk identification is the first step in risk
management process. The approaches to risk identification
process include:
o Brainstorming session
o Checklists developed from data generated from past projects
 Risk
2. Assessing the Risks. All projects have risks at the outset because
of the many unknown factors. Risks may disappear and new risks
appear as the project progresses.
Risk assessment requires answers to the following questions:
o What exactly is the risk?
o How serious it is as a threat to the project?
o What could be done to minimize its impact on projects
success?
3. Ranking of Risks. The ranking of risk is based on the impact and
probability of occurrence.
o Risks can be ranked using either a qualitative or quantitative
approach.
o The approach used should rank the risk as high risk, medium risk,
and low risk.
 Risk
4. Record the ranking on project risk log and derive action plan.
o All the risks must be recorded in the project risk log. To derive
action plan, the following should be recorded:
 A Short description of the risk;
 When t is expected to occur;
 The probability assessed;
 What consequences are expected;
 What actions will be taken if it happens;
 Who will take the actions;
 Who is responsible for monitoring the risk
 Risk
5. Monitoring Risks
o Once risks to the project have been identified and action plans
derived, then these must be monitored to make sure that prompt
action is taken when appropriate.
o Risks change with time so careful monitoring is essential as the
project proceeds, achieving success is dependent on effective risk
monitoring.
 What makes a good project?
o Well defined in scope and timing;
o Responds to real societal needs;
o Is environmentally and socially sustainable;
o Complies with regulatory requirements;
o Meet business requirements;
o Are delivered and maintained on schedule;
o Are delivered and maintained within budget;
o Deliver the expected business value and return on investment
o Is technically & financially feasible;
o Is fiscally affordable.
Factors that are crucial to the success of any project
include:
Clear and clearly articulated goals
Comprehensive, long-term, and detailed planning
Early definition of deliverable quality criteria
Active executive support with a shared vision throughout the project’s life
Carefully planned implementation
Concise, consistent, complete, and unambiguous business and technical
requirements
Realistic estimates and schedules
Early risk analysis and ongoing risk management
Planning for business process change management
Proactive issue resolution
Stakeholder involvement throughout the life cycle
Defined and consistently executed change management to minimize scope
increases
A skilled Project Manager experienced in the execution of project management
best practices

Standard software infrastructure

Execution of a formal system development methodology

A competent team
Commitment to success
Factors that contribute to the failure of a project include:
Lack of stakeholder/user input

Incomplete and/or vaguely defined requirements or specifications

Changing requirements or specifications

Lack of executive support

Insufficient planning
Underestimated time and/or resources allocated for design,
development, quality assurance, and/or quality control
Technological incompetence

Insufficient resources

Unrealistic expectations

Unclear objectives

Unrealistic timeframes

New or untested technology

THANK
YOU!!!