CHAPTER THREE

Project Identification

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 Contents
• Introduction, meaning and definition of Project Idea
• Sources of Project Ideas
• Macro Sources
• Micro Sources
• Methods of identification
• Preliminary Screening
• Project Concept Note/ Profile Preparation
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 Project Identification
• The first step in the project cycle is to identify
candidate project ideas and develop project portfolios
from which feasible projects are going to be selected.
• Project identification is the first phase in the Project
Life Cycle and essentially involves starting up the
project.
• This is a stage where one project-idea out of several
alternatives is chosen and defined.
• It involves identifying environmental /societal/
economical problems to be addressed and the needs
and interests of possible beneficiaries and
stakeholders.
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 Introduction
• Project identification is the first step towards
establishing a successful venture.
• This stage is about finding potential projects that
will result in positive net present value or that
provide benefits for the society.
• Projects usually start as new ideas which are
carefully examined and if found feasible and
desirable are translated in to projects.
• Such initiation of project ideas is called project
conception.
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 Introduction ….
• Project conception is forming or developing ideas
regarding a required intervention in a specific area
to address a problem or take advantage of
opportunities.
• Identification of project idea requires:
 imagination,
sensitivity to environmental changes and
realistic assessment of what the firm can do.
• Project identification is interrelated with the
government policies, infrastructural developments
and skill of people.
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 Objectives of the stage

• The task (objective) of identification stage is

– To identify investment opportunities, which are
feasible and promising and which deserve
further in-depth study and appraisal.
– To identify the need in the market or customers
– To identify the problems in the community

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 Objective …
• Projects are identified because there is a need
or problem or an opportunity
• Need is a condition or situation in which
something is required or wanted
• Problems are undesirable situations that
prevent the organization from fully achieving
its purpose, goals and objectives
• Opportunities are chances to improve the
organization even in the absence of specific
problems.
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 Objective…
• The search for promising project ideas is the
first step towards establishing a successful
venture.
• Identifying suitable project ideas is the most
important and crucial step in the whole
process of project preparation.
• Identification of opportunities requires
imagination, sensitivity to environmental
changes, and realistic assessment of what the
firm/individual can do.
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 Sources of project Ideas
• Generally, project ideas are born at two levels,
 the micro-level and
 macro-level
• Micro level sources- Project ideas originated at
individual or household level that can be further
developed through discussion with friends and
colleagues.
• Macro Sources: Project ideas originated by
institutions at regional or federal level.

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 Sources of Project Ideas(methods)

1. SWOT analysis

2. Need and Problem analysis

3. Stakeholder analysis

4. Objective analysis

5. Alternative analysis

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 1. SWOT Analysis:
• It facilitates and Stimulates the flow of ideas:
• Periodic SWOT analysis stimulates the flow of
ideas.
• Often firms adopt a somewhat casual and
haphazard approach to the generating of
project idea.
• SWOT is an acronym for strengths,
weaknesses, opportunities and threats.

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 SWOT Analysis….
• It 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 idea
• Once the problem is defined and formulated, both
internal and external environment shall be analyzed
to define and set achievable objectives of the project.
• SWOT analysis is used to analyse the internal
strengths and weaknesses of an organization and
the external opportunities and threats that it faces.
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 SWOT Analysis….
• The idea which sounds relatively most promising must
be put under SWOT analysis.
• SWOT analysis is a tool used to evaluate the Strengths,
Weaknesses, Opportunities, and Threats involved in a
project idea.
• It involves specifying the objective of the business
venture or project and identifying the internal and
external factors that are favorable and unfavorable to
achieve the objective.
• A SWOT analysis must first start with defining a desired
end state or objective.
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 SWOT Analysis….
• The aim of any SWOT analysis is to identify the
key internal and external factors that are
important to achieve project objectives.
• SWOT analysis groups key pieces of information
into two main categories:
 Internal factors – The strengths and weaknesses—
internal to the organization (corporate appraisal).
 External factors – The opportunities and threats
presented by the external environment to the
organization(monitoring business environment).

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 SWOT Analysis….
• Strengths: characteristics of the business or
team that give it an advantage over others in
the industry.
• Weaknesses: are characteristics that place the
firm at a disadvantage relative to others.
• Opportunities: external chances to make
greater sales or profits in the environment.
• Threats: external elements in the environment
that could cause trouble for the business.
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 SWOT Analysis….
• Identification of SWOTs is essential because
subsequent steps in the process of planning
for achievement of the selected project idea
may be derived from it.
• First, the decision makers have to determine
whether the objective is attainable, given the
SWOTs. If the objective sounds NOT attainable a
different project idea must be selected and the
process shall be repeated.

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 2. Need and Problem analysis :
• Need and Problem analysis is a critical step in the
project identification process and is an important
sources of project idea.
• On the basis of available information, the existing
situation is analysed: that is, the major needs and
problems are identified and the main causal
relationships between these are visualized.
• In formulating problems, needs and existing
problems should be identified and will serve as
source of project idea.
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 Sources of Project Ideas
The following are possible sources of project ideas
related to need and problem Analysis and some times
with opportunity sensing
A. Analysis of the performance of existing industries
B. Examination of the inputs and outputs of various
industries
C. Reviewing import and exports
D. Analyzing Economic and Social Trends
E. Drawing Clues from Consumption Abroad
F. Attend trade fairs
G. Stimulate Creativity for Generating New Product Ideas
H. Government policy
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 Sources of Project Ideas
A. Analyze the performance of existing industries:
• A study of existing industries in terms of their
profitability and capacity utilizations indicates
promising investment opportunities.
• An examination of capacity utilization of various
industries provides information about the potential
for further investment.
• Such a study becomes more useful if it is done
region wise, particularly for products which have
high transportation costs.
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 Sources of Project Ideas
A. Examine the inputs and outputs of various industries:
An analysis of the inputs required for various industries
may throw up project ideas. Opportunities exist when:
a) Materials , purchased parts or supplies are presently
being procured from distant sources with attendant
time lag and transportation cost and
b) Several firms produce internally some
components/parts which can be supplied at a lower
cost by a single manufacturer who can enjoy
economies of scale.
c) Similarly, a study of the output of the existing
industries may reveal opportunities for adding value
through further processing of the main outputs.
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 Sources of Project Ideas
C. Review import and exports: An analysis of import
statistics for a period of years is helpful in
understanding the trend of imports of various goods
and the potential for import substitution.
– Indigenously manufacturing of goods currently imported is
advantageous for several reasons:
• (i) it improves the balance of payments situation,
• (ii) it generates employment, and
• (iii) it provides a market for the supporting industries and services.
– Likewise an examination of export statistics is useful in
learning about the export possibilities of various products.

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 Sources of Project Ideas
D. Analyze Economic and Social Trends: A study of economic
and social trends is helpful in projecting demand for
various goods and services. Changing economic conditions and
consumer performances provide new business opportunities.
• Example: Increasing desire for leisure and recreational
activities. This has caused a growth in the market for
recreational products and services.
• Exercise: Make a group of four and identify one project
idea that can be only implemented under current
economic and social developments achieved in Ethiopia.
(Absolutely not realizable during the Derg regime)
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 Sources of Project Ideas
E. Draw Clues from Consumption Abroad: Entrepreneurs willing to
take higher risks may identify projects for the manufacture of
products or supply of services which are new to the country but
extensively used abroad.
F. Attend trade fairs: national and international trade fairs provide an
excellent opportunity to get to know about new products and
developments.
G. Stimulate Creativity for Generating New Product Ideas: New
product ideas may be generated by thinking along the following
lines: Modification, rearrangement, reversal, magnification,
reduction, substitution, adoption and combination.
H. Government policy: In the planned economy, the government
plays a major role in the industrial development and spells out
priorities for the economy and lays the framework for development
and resource allocation, which in turn can serve as sources of
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 Sources of Project Ideas
3. Stakeholder Analysis:
• Analyzing the stakeholders who need to be involved is one of the
most crucial elements of any project planning. Stakeholder
analysis is a useful tool or process for identifying stakeholder
groups and describing the nature of their stake, roles and
interests.
• A stakeholder can be defined as: ‘any person, group, organization
or institution with a direct interest or ‘stake’ in something.’
• The aim of stakeholder analysis is to:
 Identify and define the characteristics of key stakeholders
 Assess the manner in which they might affect or be affected by the
proposed outcomes.
 Understand the relationship between stakeholders
 Assess the capacity of different stakeholders to participate.
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 Sources of Project Ideas
• Stakeholder analysis helps to identify unfulfilled
Psychological needs: For well-established, multi-brand
products, the question to be asked is whether there are
certain psychological needs of the consumers which are
presently unfulfilled. To find out whether such an
opportunity exists, the technique of spectrum analysis is
useful. This analysis is done in the following manner:
– i) Important factors influencing brand choice are identified,
– ii) existing brands in the market are positioned on a continuum in
respect of the factors identified in step (i),
– iii) Gaps which exist in relation to consumer psychological needs
are identified.

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 Sources of Project Ideas
• Some potential groups who may be considered
are:
Users groups - people who use the resources or
services of the firm.
Interest groups - people who have an interest in or
opinion about or who can affect the use of a
resource or service of a firm.
Winners and losers
Beneficiaries
Intermediaries
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 Sources of Project Ideas
4. Objective analysis
– After defining project problems and identifying
stakeholders, the next step is to analyse the
objectives.
– From objective analysis, the findings and gaps may be
transformed into a specific project idea.
– In objective analysis, the aim is to ensure the
relevance and timeliness of objectives.
– A clear articulation and prioritization of objectives
• helps in channelizing the efforts of employees &
• helps them to think more imaginatively.
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 Sources of Project Ideas
5. Alternatives Analysis:
• Project identification is the stage where one
project-idea out of several alternatives is
chosen and defined.
• The purpose of alternatives analysis is to
identify most possible alternative projects
options, assess their feasibility and agree upon
one project.

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 Project Identification
A project idea may also originate from multiple
sources. For instance:
• New experiments emerging from previous project
failures,
• Expansion and replication of successful projects
tested locally or proven feasible in other developing
countries,
• From the discovery of critical economic and social
bottlenecks of shortages, excess or idle resources,
• Forward & backward linkages with existing projects,
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 Project Identification
In general a proposal may be deemed to have passed the
identification test and be ready for detailed preparation when:
• Major options and alternatives have been identified and some
initial choices made;
• The principal institutional and policy issues affecting project
outcome have been identified and deemed amenable to solution;
• The project options selected are expected to be justified, given
rough estimates of the expected costs and benefits;
• There is justifiable expectation that the project will have
adequate support from the relevant political authorities, other
stakeholders and the intended beneficiaries.

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 Methods of identification
The methods for project identification include:
1. Analysis of Major Problem
2. Analysis of Objectives
3. Economic Analysis
• Statistical analysis of trade reports
• Study of comparative advantage
• Analysis of linkage
4. Socio-spatial Approach to Project Identification
• Participatory Approach
• Area Based Functional Analysis

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Project Concept Note/ Profile Preparation

• 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.
• Depending on the type of project it should include the following
components:-
– Justification and purpose
– Beneficiaries and stakeholders
– Resources and institutions
– Polices and plans
– Impacts
– Support
– Risks & Assumptions
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 Preliminary Screening
• Screening is an initial review of project ideas and concepts to see
if they should be advanced or abandoned at an early stage. Once
a project profile has been prepared, it would be important to
develop a clear idea of what the proposed project is supposed to
achieve.
• For this purpose, the following aspects may be looked into:
 Compatibility with the promoter- with the interest, skills, personality,
and resources of the entrepreneur
 Consistency with governmental/organizational priorities
 Project idea should go in line with the national goals and governmental
regulatory framework.
 Availability of inputs
 Adequacy of market
 Reasonableness of cost
 Acceptability of risk level
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 Prioritization and Ranking
• The limited resources available enforce that
effective project identification and selection
at various levels will be essential.
• To decide which projects to support it will be
necessary to set priority. This calls for the
ranking of projects using a set of criteria
(which varies from organization to
organization)
• Potential criteria for ranking projects are
given below:
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 Criteria for ranking projects
1. Extent
– Number of people affected by the project
– Geographic area affected by the project
2. Economic and financial benefit
– Potential economic benefits to the country or region, community
etc
3. Environmental
 Conservation of natural resources and more sustainable land use
 Protection of natural resources such as forests
4. Social
 Poverty alleviation
 Assistance to disadvantaged groups

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 criteria for ranking projects……
5. Policy
– Is the project in line with national and regional policies?
6. Resources
 Availability of human and other resources to implement projects
 Likely availability of funding from government, NGO and /or
donors
7. Success or failure (Risk..)
– What are the chances of project successfully meeting its objectives?
– What degree of risk are associated with the project that may affect
its implementation?
8. Support
– Government and community support and demand for project

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 Project Rating Index
• When a firm evaluates a large number of
project ideas regularly, it may be helpful to
streamline the process of preliminary
screening by employing a project rating index.

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Steps in determining the project rating index

• Identify factors relevant for project rating

• Assign weights to these factors
• Rate the project proposal on various factors, using
the suitable rating scale.(Typically a 5-point or 7-
point scale is used)
• For each factor multiply the factor rating with the
factor weight to get the factor score
• Add all the factor scores to get the overall project
rating index.

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 End of the chapter

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