Chapter 3 Project Identification BnFn.pptx

Project Identification steps and procedures

1. Chapter-3 Project Identification

2. Outline Project Identification 3.1. Project Identification 3.2. Source of Project Ideas 3.3. Project Concepts and Profiles 3.4. Prioritization and Ranking 3.5. Opportunity, pre-feasibility, feasibility and support studies

3. Introduction : Generating Project Ideas The search for promising project ideas is the first step towards establishing a successful project. Project idea is the concept of projects that to be further developed in different project cycle. This project idea may have so many sources. It can emanate from a variety of sources (from micro and macro level).

4. Project identification It is the first stage of project cycle which involves the screening of project ideas. This is the birthplace of the project .

5. The following are some feature of project identification: Concentrate on best prospects: Focusing attention on a limited number of project ideas is a better way to assure that drawbacks are avoided at early stage Quick negative decision is better than delay: Particularly where there is a sufficient collection of project ideas, it is better to quickly reject, or at least recycle ideas that present difficult obstacles from the beginning. Assure commitment of potential sponsor to implementation Key Feature of Project Identification

6. 3.2. Source of Project Ideas Project ideas have so many sources. In general, two levels where project ideas are born: The macro level and the micro level. 1. Macro sources At the macro level , project ideas emerge from: National policies & strategies National, sectorial, sub- sectoral / regional plans & strategies supplemented by special studies General surveys, resource potential surveys, regional studies, master plans, statistical publications which indicate directly or indirectly investment opportunities;

7. 3.2 . Source of Project Ideas Government decisions to correct social and regional inequalities or to satisfy basic needs of the people through the developments of projects; Unusual events such as draughts, floods, earth-quake, hostilities, etc.; Multilateral or bilateral development agencies and as a result of regional or international agreements on which the country participates.

8. 2. Micro sources At the micro-level , project ideas may emanate from: The identification of unsatisfied demand or needs The existence of unused or underutilized natural or human resources and the perception of opportunities for their efficient use. The need to remove shortages in essential material services, or facilities that constrain development efforts. The initiative of private or public enterprises in response to incentives provided by the government. The desire of local groups or organizations to enhance their economic status and improve their welfare.

9. Stimulating the flow of ideas To stimulate the flow of ideas, the following are helpful: SWOT Analysis Clear Articulation of Objectives - Cost reduction - Productivity improvement - Increase in capacity utilization - Improvement in contribution margin - Expansion into promising fields Fostering a Conducive Climate

10. Preliminary Screening of Projects After having source of project idea, it is better to screen them. Hence, preliminary screening is, therefore, required to identify most promising project ideas from those or not.

11. Who Identifies Projects? The parties or agents involved in a project each determine their own criteria according to their priorities (promoter, investor, financier, guarantor, government). Investment promotion agency: Development goals of the country or the region which may be related to issues of security, economic growth, political stability may be a cause for prioritizing projects Also socio-economic or distribution effects of the project may be an important criterion.

12. Investor: Projected profitability - higher return is better; short Payback period, + ve NPV Growth potential - an expanding market and general economic prosperity; Magnitude of investment – the project investment must match the capital constraints of the investor; Risk - tolerance to risk varies by investor. Lender: Banks and other financial institutions sometimes do opportunity studies and screen the resulting investment ideas to assess the structure of their loan portfolios.

13. 3.3. 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 . It should include answers to the following questions . 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?

14. Beneficiaries and Stakeholders Best regards, What will benefit from the project? Who has a share or s 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?

15. Policies and Plans How does the project proposal fit into any sector or regional plans? Does the project fit into current policies? Impacts 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?

16. 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 for others?

17. Project Selection Projects meeting screening criteria are selected for further study. Unless they may face one of the following options: Reject: Some of the projects which not acceptable at the present time would be rejected as worthless. Rework: Projects that need some refining of major features before serious consideration. Consider later: Projects that are not currently timely accepted but, latter it may be considered.

18. 3.4. Prioritization and Ranking During the preliminary screening look into: Compatibility with the promoter Consistency with government priorities Availability of inputs Adequacy of market Reasonableness of costs Acceptability of risk level

19. Prioritization and Ranking A nalyst should eliminate project proposals that: Are technically unsound and risky; Have no market for the output; Have inadequate supply of inputs; Are very costly in relation to benefits; Assume over-ambitious sales and profitability.

20. Project Rating Index Steps in determining the project rating index: Identify factors relevant for the 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 or a 7-point scale is used for this purpose.

21. Project Rating Index Steps in determining the project rating index: iv. For each factor, multiply the factor rating with the factor weight to get the factor score. v. Add all the factor scores to get the overall project rating index.

22. Project Rating Index Assume the following factors are identified to be relevant for project rating Factors Factor weight Technical know-how Input availability Reasonableness of cost Adequacy of market Stability Dependence of firm’s strength Consistency with government priorities 0.20 0.15 0.20 0.05 0.10 0.20 0.10

23. Project Rating Index If firm uses 5 rating scale, determine the rating index for the project If policy of firm is to further study the projects whose rating index is 3.50 and above Factor weight Rating Factor 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

24. 3.5 . Opportunity, Pre-feasibility, Feasibility and Support Studies The end of ch-3