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Project chapter 3

Chapter Three discusses the generation and screening of project ideas, emphasizing the importance of identifying suitable project opportunities from various sources, including private firms, government units, and development agencies. It outlines criteria for selecting project ideas, such as profitability, feasibility, and resource availability, and introduces the SMART framework for project objectives. The chapter also details the preliminary screening process to evaluate project ideas based on compatibility, market adequacy, cost structure, and risk levels.

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8 views16 pages

Project chapter 3

Chapter Three discusses the generation and screening of project ideas, emphasizing the importance of identifying suitable project opportunities from various sources, including private firms, government units, and development agencies. It outlines criteria for selecting project ideas, such as profitability, feasibility, and resource availability, and introduces the SMART framework for project objectives. The chapter also details the preliminary screening process to evaluate project ideas based on compatibility, market adequacy, cost structure, and risk levels.

Uploaded by

eyobminda82
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Chapter Three

Generation and screening of Project


Ideas (Project Identification)

Project Analysis and Evaluation 1


Who Identifies Projects?
 There are quite large number of institutions and/or
groups that often identify investment opportunities (or
generate project ideas) in the society.

 These entities may be:


 private firms,
 public enterprises,

 government units,

 local or international development agencies,

 financial institutions,

 profit seeking or not-for- profit organizations.


Generation of Ideas:
Identifying suitable project ideas is the most important
step in the whole process of project preparation.
The key to success lies in getting into the right business
in the right time.
Good project ideas are the key to success.
Generally project ideas are generated depending on:
 Consumer needs
 Market demand
 Resource availability
 Technology
 SWOT analysis
 Political considerations etc,
Cont’d
The project idea selection is selection of project idea from
available alternatives is to be best suited to the entrepreneurs’
capacity, competence and willingness. The project Selection
includes
 Profitability
 Feasibility

 Resource-availability

 Acceptability
 The basic criterion for selection of a project could be existence
of a favorable cost-benefit relationship.
Cont’d
Project idea should also be SMART:
S – Specific objective
M – Measurable
A – Achievable
R – Realistic
T – Time bounded
Cont’d
To have a wide range of options, the sources of
project ideas can be categorized into two they are:
Micro level sources
Macro level sources
A] Micro level;
At micro level project ideas can be generated from
various sources. Some of these are:
1. Analysis of the performance of existing industries
 profitability
 risk
2. Examination of the input-outputs of various
industries
Cont’d
3. Review of imports and exports
 imports substitutions

 export possibilities

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. Identification of unfulfilled psychological needs
9. Stimulating creativity for generation’s new product lines:
 New product ideas may be Modifications, rearrangements, reversal, magnifications,
reductions, substitutions, adoptions and combinations.
Cont’d
B. At Macro level:
At macro level project ideas can be obtained from various
sources:
1. Project ideas from government policies and plan
2. Project ideas from technical specialists
3. Project ideas from local leaders
4. Project ideas from Entrepreneurs
Screening potentially promising
project ideas
Once a list of project ideas has been put forward, the first step
is select one or more of them as potentially promising.
This calls for quick preliminary screening by experienced
professionals who could also modify some of the proposals.
During the preliminary screening to eliminate ideas, which are
not promising, and one is required to look into the following
aspects.
1. Compatibility with the promoter
The idea must be compatible with the interest, personality,
and resources of the entrepreneur.
2. Consistency with government priorities:
The project idea must be feasible given the national goals
and governments regularity framework. The questions to be
raised in this context are:
 Is the project consistent with national goals and
priorities?
 Are there any environmental effects contrary to
government regulation?
 Can the foreign exchange requirements of the project be
easily accommodated?
 Will there be any difficulty in obtaining the license for
the project?
Cont’d
3. Availability of inputs:
The resources and inputs required for the project
must be reasonably assured. To assess this, the
following questions need to be answered.
Are capital requirements of the project within
manageable limits?
Can the technical know- how required for the project
be obtained?
Are the new materials required for the project
available domestically at a reasonable cost? If the
materials have to imported, will there be problems?
Is the power supply for the project reasonably
obtainable from external sources and Captive power
sources?
Cont’d
4. Adequacy of the market:
The size of the present market must offer the
prospect of adequate sales volume. To judge the
adequacy of the market the following factors have
to be examined;
Total present domestic market
Competitors and their market shares
Exports markets
Sales and distribution system
Projected increase in consumption
Barriers to the entry of new units
Economic, Social and demographic trends favorable to
increased consumption
Patent protection
Cont’d
5. Reasonableness of cost:
The cost structure of the proposed project must enable it to
realize an acceptable profit with a price. The following should
be examined in this regard:
Cost of material inputs
Labor costs
Factory overheads
General administration expenses
Selling and distribution cost
Service cost
Economies of scale
Cont’d
6. Acceptability of risk level:
The desirability of a project critically dependent on the risk
characterizing in the assessment of risk the following factors
should be considered:
Business cycles
Technological changes
Competition from substitute
Competition from imports
Government control over price and distribution
Cont’d
Therefore, during the preliminary selection,
the analyst should eliminate project
proposals that
Technically unsound and risky
Have no market for the output
Have inadequate supply of inputs
Are very costly in relation to benefits and
End of Chapter three

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