Dadimos Business and Technology College
Advanced Project Management
for BUMGT (PG students
By Ibrahim Hamida
Unit Two
GENERATION AND SCREENING OF PROJECT
IDEAS
Project selection
GENERATION AND SCREENING OF Idea generation
PROJECT IDEAS Environment appraisal.
?
Corporate appraisal
Project selection process
Project selection process starts with the generation of project ideas.
In order to select the most promising project, the entrepreneur
needs to generate a few ideas about the possible project one can
undertake.
The process of project selection consists of following stages:
1. Idea generation
2. Environment appraisal.
3. Corporate appraisal
4. Industry profitability
5. Preliminary screening.
Project selection
Idea generation
Environment appraisal.
Corporate appraisal
The project ideas can be generated from various internal and external sources. These
are:
Knowledge of market, products, and services.
Knowledge of potential customer choice.
Emerging trends in demand for particular product.
Scope for producing substitute product.
Market survey & research.
Going through Professional magazines.
Making visits to trade and exhibitions.
Government guidelines & policy.
Ideas given by the experienced person.
Ideas by own experience.
SWOT analysis.
GENERATION AND SCREENING OF
PROJECT IDEAS
1. Idea generation ?
Project selection
GENERATION AND SCREENING OF Idea generation
PROJECT IDEAS Environment appraisal.
?
Corporate appraisal
2. Environment appraisal
An entrepreneur or a firm systematically appraise the
environment and assess its competitive abilities.
The key elements of the environment are as follow:
Economic Sector
Government Sector
Technological Sector
Socio-demographic Sector
Competition Sector
Supplier Sector
Project selection
GENERATION AND SCREENING OF Idea generation
PROJECT IDEAS Environment appraisal.
?
Corporate appraisal
3. Corporate Appraisal
A realistic appraisal of corporate strengths and weaknesses is
essential for identifying investment opportunities which can
be profitably exploited.
The broad areas of corporate appraisal and the important
aspects to be considered under them are as follow:
Marketing and Distribution
Finance and Accounting
Production and Operations
Research and Development
Corporate Resources and Personnel
Idea generation
GENERATION AND SCREENING OF Environment appraisal.
PROJECT IDEAS Corporate appraisal
?
Industry profitability
4. Profit potential of the Industry/industry analysis
Tools for Identifying Investment Opportunities
i) Porter Model: Profit Potential of Industries
Micheal Porter has argued that the profit potential of an
industry depends on the combined strengths of the following
five basic competitive forces:
Threat of new entrants (Barrier to entry)
Rivalry among existing firms (intensity of rivalry)
Pressure from substitute products ( other products)
Bargaining power of buyers
Bargaining power of sellers
Idea generation
GENERATION AND SCREENING OF Environment appraisal.
PROJECT IDEAS Corporate appraisal
?
Industry profitability
4. Profit potential of the Industry/industry analysis
1. Threat of new entrants (Barrier to entry)
New entrant can be a threat when:-
Add (increase) capacity
Inflate costs
Push prices down
Reduce profitability
Barrier to Entry may limit the threat of new
entrant.
Idea generation
GENERATION AND SCREENING OF Environment appraisal.
PROJECT IDEAS Corporate appraisal
?
Industry profitability
4. Profit potential of the Industry/industry analysis
2. Rivalry among existing firms (intensity of rivalry)
Strong completion in the industry reduces the average profitability
of the industry. The intensity of rivalry in an industry tends to be
high when:
The number of competitors in the industry is large
The level of fixed costs is high
There is chronic over capacity in the industry
The industry’s product is regarded as a commodity or near–
commodity
The industry confronts high exist barriers.
Idea generation
GENERATION AND SCREENING OF Environment appraisal.
PROJECT IDEAS Corporate appraisal
?
Industry profitability
4. Profit potential of the Industry/industry analysis
3. Pressure from substitute products ( other products)
The threat from substitute products is high when:
the price-performance trade-off offered by the substitute products is
attractive
the switching costs for prospective buyers are minimal
the substitute products are being produced by industries earning superior
profits
4) Bargaining power of buyers
Buyers have high bargaining power when:
the purchase is large
switching costs are low
it poses a strong threat of backward integration
Idea generation
Environment appraisal.
Corporate appraisal
Industry profitability
4. Profit potential of the Industry/industry analysis
5) Bargaining power of sellers
Suppliers have strong bargaining power when:
few suppliers dominate
the supplier group is more concentrated than the
buyer
group
there are hardly any viable substitutes for the
products
supplied
the switching costs for the buyers are high
GENERATION AND SCREENING OF
their strong threat
PROJECT IDEAS for forward integration
?
Environment appraisal.
Corporate appraisal
Industry profitability
Preliminary Screening
From the long list of project ideas, preliminary screening is required
to
eliminate ideas which prima facie are not promising. For this
purpose,
the following aspects may be looked into:
Compatibility with the promoter
Consistency with government priorities
Availability of inputs
Adequacy of market
Reasonableness of cost
GENERATION AND SCREENING OF
Acceptability
PROJECT of risk level
IDEAS
5. Preliminary Screening ?
Corporate appraisal
GENERATION AND SCREENING OF Industry profitability
PROJECT IDEAS Preliminary Screening
?
Project Rating Index
5. Preliminary Screening
Project Rating Index
A preliminary evaluation may be translated into a project rating index to
prioritize :-
The steps involved in determining the project rating index are as follows:
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.)
Corporate appraisal
GENERATION AND SCREENING OF Industry profitability
PROJECT IDEAS Preliminary Screening
?
Project Rating Index
5. Preliminary Screening
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
• Once the project rating index is determined, it is compared
with a pre-determined hurdle value to judge whether the
project is prima facie worthwhile or not.
• Example
Corporate appraisal
GENERATION AND SCREENING OF Industry profitability
PROJECT IDEAS Preliminary Screening
?
Project Rating Index
5. Preliminary Screening
Factor VG G A VP Factor
weight P 1 score
Input availability 0.25 5 4 3 2 0.75
x
Technical Know-how 0.10 0.40
x
Reasonableness of cost 0.05 0.20
x
Adequacy of market 0.15 0.75
x
Complementary relationship with 0.05 0.20
x
other products
Stability 0.10 0.40
x
Dependence on firm’s strength 0.20 1.00
x
Consistency with government 0.10 0.30
priorities
Rating Index=
Corporate appraisal
GENERATION AND SCREENING OF Industry profitability
PROJECT IDEAS Preliminary Screening
?
Project Rating Index
6. Project Rating Index
• 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
.
