CHAPTER ONE: GENERAL INTRODUCTION

The basic concept of project

The concept of project planning has originated some 70 years ago. It appeared in USA and
former Soviet Union in late 1930s. It has been also widely adopted particularly in the external
funding agencies that finance public sector projects. The last 40 years extensive applications of
project analysis methods particularly in developing countries were observed. Currently
managing a project is becoming exciting new profession.

Project managers are in great demand. They are highly demanded nearly everywhere like
 Publishing house
 University
 Agricultural rural development
 Social works
 Individual construction projects and others.
It appears that they are required wherever there is work in organizations. Any one holding a
responsible position in a project is called a project manager. A project manager does in one
company is not the same as what another does in another company.

In order to understand issues related to project, we must first understand what a project really is.
It is common to hear there are different projects like cement project, power project, refinery
project, road project and others. While the term project is common to all of them, the plants
(Organizations) are not the same. In each case the project is for the plant. Which means as soon
as the plant is operational the project is deemed to be completed. The same is true for any other
projects, say for a project for method improvement, the project is completed when the method
improvement has been achieved.

For better understanding let us summarize how a project is conceived first.

In a business setting an organization must grow at least for the sake of its survival. The
organization is therefore, continuously on the lookout for good business idea which ensure
growth either on
 Existing line of business or

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  Diversified area
However, the idea must be first
o Technically feasible
o Economically viable
o Politically suitable and
o Socially acceptable
o Environmentally sustainable
Once the idea pass these test then an investment proposal is made. When the investment proposal
is approved the project commences or starts.

Thus, in any organization a project is initiated to achieve a particular mission. Whatever the
mission may be, the project is completed as soon as the mission is accomplished. The project
lives between these two cut-off points (project commencement and completion). The time span is
known as project life cycle.

Definition of Project
What is project?
No definition of project will suit every situation. In other words there are a number of ways to
define a project. Some of these definitions are the following.
- Project is in general a building block of an investment plan.
- A project can be described as a combination of human and material resources pulled
together in an organization to achieve a specific objective.
- ‘A project is a temporary endeavour undertaken to achieve a particular aim and to which
project management can be applied, regardless of the project’s size, budget, or timeline’.
- A Project is an investment activity that involves expending of financial resources to create
capital assets that produce benefits over a period of time’ Gittinger (1996).
- A Project is a temporary organisation, either as a freestanding entity or now more
commonly as an integrated component of a programme, set up to produce something or
manage a particular change.

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- A project is a series of activities aimed at bringing about clearly specified objectives within
a defined time-period and with a defined budget. (Aid Delivery Methods, Project Cycle
Management Guidelines Volume 1, March 2004.)
- A project is a proposal for an investment to create, expand and/or develop certain facilities
in order to increase the production of goods and/or services in a community during a certain
period of time.
- According to USA Project Management Institute, “Project is a one shot, time limited, goal
directed, major undertaking, requiring the commitment of varied skills and resources”. It
also describes a project as “a combination of human and non-human resources pooled
together in a temporary organization to achieve a specific purpose.”
- “Project is an effort that starts from scratch with a definite mission, generate activities
involving a variety of human and non-human resources all directed to words fulfilment of
the mission and stops once the mission is fulfilled.”
- According to ISO document define project is “a unique process consisting of a set of
coordinated and controlled activities with start and finish dates, undertaken to achieve an
objective conforming to specific requirement including constraints of time, cost and
resources”

In general a project is defined as a temporary endeavor undertaken to create unique product and
service.
A project is neither a physical nor the end result. It has something to do with the activities that go
on. From the above all definitions we can understand that
 A project is an economic/development activity
 It requires a commitment of scarce resources
 It brings some benefit from its accomplishment
 The benefit should exceed its cost
 Implementation of a project needs resources or inputs.
 Every project converts the given inputs into outputs through the process of
implementation.

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Examples of typical projects are the following.

Personal projects: Industrial projects:

• Obtain an MBA • Construct a building
• Write a report • Provide a gas supply to an industrial
• Plan a wedding estate
• Plant a garden • Build a motorway
• Build a house extension and others. • Design a new car and others.

Business projects: Public investment projects:

• Develop a new course • Education
• Develop a new product • Health
• Develop a computer system • Waste disposal
• Prepare an annual business report • Roads
• Set up a new office and others. • Electricity
• Telecommunication and others.

Characteristics of Project
A project is a big-work. It is basically a work of one whole thing. This means that while there
may be contribution from many people, it can be regarded as one whole thing. A comparison can
be made with a book. There may be many chapters in the book sometimes written by different
authors (which can be considered as sub-project), the book is a single entity and is supposed to
serve a single purpose. The various works that constitute the whole are inter-related and together
they tell the whole story. In the same way all works that are interrelated can be grouped together
and termed as a project in organizations. Thus, with project there is a concept of
 Wholeness despite diversity of work. The wholeness concept does exist in a factory or
any organization in any other work. But, in case of a project the whole has to be
completed in one-shot (once for all).
 There is a missionary zeal, an unknown force, pushing people forward for achievement
of something beyond their immediate work.

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The special features or characteristics’ of project that differentiate it from any other ongoing
activities are the following.
 Objective: A project has a fixed set of objectives. It has an established objective. Once
the objectives are achieved the project ceases to exist.
 Life span: A project cannot continue endlessly. It has to come an end at one time. It has a
defined life span with a beginning and an end. A project has a life cycle reflected by
introduction, growth, maturity and decay.
 Single entity: A project is a single entity and is normally entrusted to one responsibility
centre, while participants in the projects are many. It usually requires the involvement of
several departments and professionals.
 Team work: Any project calls for team work. The team members may be from different
discipline, organization, and even country.
 Uniqueness: No two projects are exactly similar even if the plants are exactly identical or
are duplicated. The location, the infrastructure, the agencies and the people make each
project unique.
 Change: A project sees many changes throughout its life while some of these changes
may not have any major impact, there can be changes which will change the entire course
of the project.
 Unity in diversity: A project is complex set of verities. There are varieties in terms of
technology, equipments and material, people and machinery, and work culture and ethics.
But they remain interrelated.
 High level of sub contracting: A high percentage of a work in a project is done through
contractors. The more complex is a project, the more will be the extent of contracting.
 Risk and Uncertainty: Every project has a risk associated with it. The degree of risk and
uncertainty will depend on how a project has passed through its various life cycle. The
most common reasons of uncertainty are as follows;
- Sometimes project goals are not clearly defined
- Short time scale
- Lack of proper availability of resources
- Quality factor

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Project Vs program
A project is normally originated from a plan which can be a national plan or corporate plan. In
many cases the term project is used for what should be termed as program or work package.
Some people use the term ‘project’ and ‘program’ interchangeably. However, there is a quite
difference between these concepts. Program in general is a group of related projects that are
managed in a coordinated ways to achieve certain objectives. Any development plan can be
considered as a program. A program is thus, larger in scope, activity oriented, not necessarily
time bound and its objectives are broader
Example,
 The national goal: Poverty Eradication
 Strategy: Increase productivity ( in all sectors)
 Development program: Increase agricultural productivity
This may result in a number of projects like,
 Construction of dams ( irrigation infrastructure)
 Upgrading the skill of agricultural practices
 Construction of training centers
Health program may have a number of projects like,
 Construction of hospitals
 Training of health officers
 Expansion of health centres
The Program and Projects hierarchy looks like the following.

Plan : National, Regional or company plan with development target

Program: Specific program within the frame of national or regional plan
(health, education)
Project: School project, Power plant or housing project
Work Package : Water supply and distribution package, Power
supply and distribution package

Task: Award of water supply contract, Construction of foundation

Activity

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A national plan is a wider concept that incorporates all sectors of the economy. A programme
can represent a sector and is a collection of closely connected projects. A project is an
investment activity derived from a program where resources are used to create capital assets

Classification of Project
Projects have been classified in various ways by different authors.
Quantifiable and Non-Quantifiable Projects
Quantifiable projects are the projects in which plausible quantitative assessment of benefits can
be made. Example: power generation, industrial development, and mineral development.
Non-Quantifiable or Qualitative projects are those projects where assessment of benefit is made
in qualitative terms. Example: health, education and defense projects.

Sectoral Projects
Some projects are classified on the basis of sectoral base. The projects can fall into the following
sectors. This system of classification has been found useful in resource allocation at macro level.
i) Agriculture and allied sector
ii) Irrigation and power
iii) Industry and mining
iv) Transport and communication
v) Social service sector
vi) Miscellaneous
Classification of Projects by Financial Institutions
Financial institutions classified projects into the following groups, based on the need of the
project.
i. New project: to meet needs for a good or service.
ii. Expansion project: to increase the plant capacity for the current plant.
iii. Modification projects: for technological upgrading the existing plant and machinery or
production process.
iv. Replacement project: to replace old machinery with a new machinery of some capacity to
improve operational efficiency.
v. Diversification projects: to offer more than one related product or unrelated product.

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 vi. Backward integration projects: to add manufacturing capacity for the in-house production
of raw materials used for the existing plant.
vii. Forward integration projects: to add manufacturing/processing facilities at the end of
production line to further process the existing products for value addition.

Why deal with projects and Project management?

Resources are scarce both in the private and the public sector. Therefore all involved in decision
making are concerned with securing value for money from every investment. Private and
Governments need to be able to understand the value of money a project yields, for example they
need to be able to compare the net benefits of a roads project with for example a new hospital.
The profitability of public sector investment is not an equitable way of measuring the worth of
projects. For example if a road is tolled it may generate profit, whereas a hospital may not.
Therefore governments need a method to valuing the benefits of an investment which may not
have easily defined monetary value. Dealing with project management helps to eliminate
uncertainties, increase the effectiveness and efficiency of operations, identify and work towards a
common goal, and establish a means for monitoring and control.

Project management can be defined in different ways. Some of these definitions are the
following.
Managers of projects engage in planning, organising, leading and controlling to satisfy project
objectives.
Project Management is a set of principles, practices, and techniques applied to lead project teams
and control project schedule, cost, and performance risks to result in delighted customers. Cost,
time and performance are the focus of this definition.
Project management includes planning, organizing, directing, and controlling activities in
addition to motivating what is usually the most expensive resource on the project - the people.
Planning involves deciding what has to be done when and by whom. The resources then need to
be organized through activities such as procurement and recruitment. Directing their activities
towards a coherent objective is a major management role. The activities also need controlling to
ensure that they feet within the limits set for them.

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Peter Morris described project management as “… the process of integrating everything that
needs to be done (typically using a number of special project management techniques) as the
project involves through its life cycle (from concept to handover) in order to meet the project’s
objectives.”
Rory Burke defined it as “… the application of knowledge, skills, tools and techniques to project
activities in order to meet stake holder’s needs and expectations from a project.” In other words
the project manager must do whatever is required to make the project happen-one could not have
a wider all encompassing job description.
Project Management is therefore the art of directing and coordinating human and material
resources throughout the life of a project by using modern management techniques to achieve
predetermined objectives of scope, cost, time, quality and participant satisfaction’.

Why Projects Fail?

Most large-scale programs or projects do not succeed, mainly driven by inadequate governance
and poor planning.

Large Programs/Projects Success Rates looks like the

following.
Successful

16%
53%
Under Perform
31%
Cancelled

Source: Standish Group International, Survey from 2500 personnel attending project
management training.

Some of the possible reasons for project failure are the following.
Reasons for Projects Failure %
Poor organizations and project management practices 36%

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Poorly defined or missing project objectives 20%

Ineffective project planning 15%

Insufficient project personnel resources 10%

Problems with suppliers 4%

Technical problems 4%

Others 11%

Source: Standish Group International, Survey from 2500 personnel attending project
management training

Why conduct project analysis? Project analysis is conducted because of the following main
factors.
 To stop bad projects
 To prevent good projects from being destroyed
 To determine if components of projects are consistent
 To assess the sources and magnitudes of risks
 To determine how to reduce risks and efficiently share risks

A proper analysis will cause the project to be redesigned so that it is less likely to fail. World
Bank experience shows that the probability of failure for poorly prepared projects within 3 years
of a project’s life is 7 times that of well-prepared projects. Poorly prepared projects have 16
times as high a probability of failure within 5 years as compared to well-prepared projects.

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CHAPTER TWO: PROJECT CYCLE

A project passes through a number of life cycles called project cycle. Project Cycle is the various
stages through which project proceed from inception to implementation. It is a stage which
project advance from inception to maturity stage. A project cycle covers all the steps necessary
to bring a project to the point where its technical, economic and financial feasibilities have been
established and it is ready for appraisal. Each stage follows the proceeding one and leads to the
next. These different phases are identified by different institutions and authors. Some of the
phases as identified by different authors are the following. The Project Analysis or appraisal is
done in stage (Cycle) and should provide information on administrative feasibility, marketing,
and technical appraisal, financial capability, expected economic contributions, and social
objectives.

The Baum Cycle (World Bank Procedures)

Baum (1970) model is the first basic model of a project cycle which has been adopted by the
World Bank. According to this model a project cycle consists of the following six stages.
 Identification
 Preparation
 Appraisal and Selection
 Promotion, Negotiations, Board presentations
 Implementation and supervision
 Evaluation

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Gittinger (1996) in his book Economic Appraisal of Agricultural projects defines the cycle to
be:-
 Identification
 Preparation and analysis
 Appraisal
 Implementation
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  Evaluation
A Professional Institute, Project Management Institute (PMI) coins the cycle in terms of:
 Initiating, Planning, Executing, Controlling and Closing.
The Asian Development Bank Project cycle model looks like the following.

The European Commission/Europe Aid Approach consists of six phases and has been considered
as the most recent approach developed as guidelines for development of projects.
 Programming
 Identification
 Appraisal
 Financing
 Implementation
 Evaluation

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 Phases of the project cycle – UNIDO manual
Phase 1 – Pre-investment

Opport Prefeasi Feasi Apprais

unity bility bility al &
study study Study Decisio
Phase 2 – investment ns

Construc Commissio
Negotiatio Engine
tion & ning & start
n and ering
Manpow up
Contractin Design
Phase 3 – Operation er
g
training
Phase 4 – Evaluation

However, in most literature and guide books the stages or phases of projects are divided into six
phases and this approach are preferred for discussion.
1. Identification ( will be covered in chapter three)
2. Pre-feasibility study
3. Feasibility study
4. Project appraisal and Selection
5. Implementation
6. Ex-post evaluation

2. Pre feasibility study

After we have identified project ideas the next step is project preparation and analysis. Project
preparation includes both Pre-feasibility and Feasibility studies. Once a project idea is identified
a preliminary project analysis will be done (i.e., pre-feasibility study) which means the project
idea must be elaborated in sort of study.

Why pre-feasibility study is conducted?

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Undertaking a feasibility study that enables a definite decision to be made on the project is a
costly and time – consuming task. Therefore, before assigning larger funds for such a study,
preliminary assessment of the project idea might be made in a pre-feasibility study. In the pre-
feasibility study stage the analyst obtains rough estimation of the major components of the
project’s costs and benefits. Some of the main components examined during the pre-feasibility
study include:
 Availability of adequate market (or beneficiaries)
 Project growth potential
 Investment costs, operational cost and distribution costs
 Demand and supply factors; and
 Social and environmental considerations
If the project is appeared to be sound the next sages is a feasibility stage

3. Feasibility study
Pre – feasibility study should be viewed as an intermediate stage. A feasibility study should
provide all data necessary for an investment decision like the commercial, technical, financial,
economic, and environment aspects. An investment project should be defined and critically
examined in the feasibility study. Therefore, the structure of a pre – feasibility study should be
the same as that of a detailed feasibility study. The major difference between them lies on the
amount of work required in order to determine whether a project is likely to be viable or not.
Once the project is decided as viable using pre-feasibility study, a detailed analysis of issues
should be conducted like marketing, technical, financial, economic, and environmental aspects is
undertaken in the feasibility stage.

Feasibility study provides a comprehensive review of all aspects of the project and lays the
foundation for implementing of the project and evaluating it when completed. In the feasibility
study, a team of specialists, like scientists, engineers, economists, managers, sociologists, and
environmentalists etc are needed to work together. If the project is viable on this stage, the next
step is project selection and design stage. Which means, in the feasibility stage more accurate
data need to be obtained in order to proceed to the next stage.

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Finally, the feasibility report should include (but not limited) the following analysis
 Market analysis
 Technical analysis
 Organizational analysis
 Financial analysis
 Social – economic analysis, and
 Environmental analysis

4. Project appraisal and selection

The feasibility study would enable the project analyst to select the most likely project out of
several alternative projects. Selection follows, and often overlaps with the feasibility analysis. It
addresses whether the project is worthwhile or not. A wide range of appraisal criteria have been
developed to judge the benefits of a project. After a project has been prepared, it is appropriate to
forward for a critical review (external review). This provides an opportunity to re-examine every
aspect of the project plan to assess whether the proposal is appropriate and sound before large
sums are committed. Project appraisals cover the following aspects.
o Technical – here the appraisal concentrate in verifying whether the proposal will work in
the way suggested or not.
o Financial – this will try to see if money needed for the project have been calculated
property, their sources are all identified, and reasonable plans for their repayment are
made where necessary.
o Commercial- like the way the necessary inputs for the project are supplied and the
arrangements for the supply of the products are verified.
o Economic – the appraisal here tries to see whether what is proposed is good from the
perspective of the national economic development.
o Managerial – this aspect of the appraisal examines if the capacity exists for operating the
project and see if those responsible ones can operate it satisfactorily. Moreover, it tries to
see if the responsible are given sufficient power and scope to do what is required.
o Organizational – the appraisal examines the project how it is organized internally and
externally. This helps to if arrangement and its organization allow the proposals to be
carried out properly and to allow for change as the project develops.

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The issues are the subjects of specialized appraisal report. And on the basis of this report,
financial decisions are made – whether to go ahead with the project or not.

5. Implementation
The objective of any effort in project planning and analysis is to have a project that can be
implemented to the benefit of the society. After the project prepared and appraised the next step
is implementing the project. Implementation is the most important part of the project cycle. In
this stage funds are actually disbursed to start the project and keep running and contracts are
signed.

A major priority during this stage is to ensure that the project is carried out in the way and within
the period that was planned. During the project implementation stage, the following important
points should be considered.
 All the stages of implementation should be completed within the time schedule allotted.
 The output stream should be the same as contemplated.
 The physical targets are to be realized with in the financial allocation.
 Project analysts (manager) must keep an eye over changes in technology, taste, price,
profitability, etc.
 In the case of private investments, profitability is to be so insured that investment funds are
expected from within. However, Problems frequently occur when the economic and
financial environment at implementation differs from the situation expected during
appraisal. For example, price or political environment may change. Due to these facts,
project implementation must be flexible and original proposals are modified frequently to
capture these changes.

The implementation phase for an industrial project consists of several stages like project and
engineering designs, negotiations and contracting, construction, training, and plant
commissioning.
6. Ex-post evaluation
The final phase in the project cycle is evaluation. Once a project has been carried out the actual
progress with the plans should be evaluated in order to judge whether the decisions and actions

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taken were responsible and useful. However, evaluation is not limited only to completed
projects. Ongoing projects could also be evaluated to find solutions for problems when the
project is in trouble. The evaluation may be done by, the project management team, the
sponsoring agency, or other bodies. Moreover, evaluation should be undertaken when a project is
terminated or is well into routine operation.

Some of the benefits which can be obtained from evaluation are the following.
 The reality of the assumptions that were made will be evaluated;
 It provides an experience that is highly valuable in future decision making;
 It suggests corrective action to be taken in the light of actual performance;
 It helps in uncovering judgment biases;
 It induces a desired caution among project sponsors.
Generally, by performing evaluation weakness and strengths should carefully be noted so as to
serve as important lessons for future project analysis undertaking.

CHAPTER THREE: PROJECT IDENTIFICATION

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Project starts by generating potential idea that can be converted into a meaningful project.
Project identification involves finding project’s idea, which could contribute towards achieving
specified business/development objectives. In many cases many projects start as a simple idea
and later on it may grow up into a full-fledged project. Identification of promising investment
opportunities (projects) requires imagination, sensitivity to environmental changes, and a
realistic assessment of what the firm or organization can do.

If the project is a private project the initiating entity will define the concept, expectation and
objectives of the project. But, if the project is a public project, scrotal information is an important
source to define the concept, expectation and objective of the project.

To tap creativity of people and harness their entrepreneurial urges a conducive climate has to be
fostered. It is conscious, deliberate and systematic effort by an organization to identify
opportunities that can be profitably exploited. One has to think in the lines of rearrangement,
modifications, reversal, magnification, reduction, substitution, adaptations and combinations.
The stimulation of the project ideas is possible by a continuous monitoring of the market to find
the unmet needs. By using the SWOT (Strengths, Weaknesses, Opportunities and Threats)
analysis, clear articulation of objectives, prioritization and channelizing the efforts in right
direction can be formulated. Following points are useful for the stimulation of the project ideas.
Analyze performance of existing industries.
Examine inputs and outputs of various industries (raw material, labor and other resources).
Review imports and exports statistics
Study plan outlays and government guidelines
Data from various sources like financial institutions and development agencies (primary
and secondary information)
Study technological developments.
Draw clues from consumption abroad
Attend trade seminars (national and international)
Analyses financial, economic and social trends.
Identify unfulfilled psychological needs
Explore possibility of reviving sick units

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Another way for generating ideas may be to identify potential problems. When problems are
anticipated early, they cease to be problems, as possibility of solving them exists. The following
categories can be considered when trying to identify potential problems on projects.
New technology: Unproven processes
Prototype equipment: Scaled up equipment with an area of risk demanding reliability
Site conditions: Unusual climates as well as challenges presented by outer space and
bottom of the oceans
Limited resources: Shortage of skilled technicians, limitation of space, restriction on
spending
Delays in obtaining permits
Process control systems: complications in design, procurement and installation
Difficult access: No conventional means of transport to site
Labour: areas with history of labor turmoil
Economic conditions: uncertain markets

Each project will have certain problems, which are obvious, and others, which may not be so
apparent or may be hidden. The selection of the right project for future investment is crucial for
long survival of the company as well as country. The selection of wrong project may precipitate
failure to execute in spite of support from good management.

The first stage in the cycle is to find potential projects. There are many, many sources from
which suggestions may come. The most common will be well-informed technical specialists and
local leaders. While performing their professional duties, technical specialists will have
identified many areas where they feel new investment might be profitable. Local leaders will
generally have a number of suggestions about where investment might be carried out. Ideas for
new projects also come from proposals to extend existing programs. A program to develop water
resources will probably lead to suggestions of additional areas for irrigation. An existing land
settlement program will probably generate suggestions of new areas for settlement.
Suggestions for new projects usually arise because some products are in short supply-or will be
in a few years if production is not expanded or imports increased. The analysis may be based on

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general knowledge or upon a more systematic examination of market trends and import statistics.
In addition, many countries have development banks intended to encourage growth of domestic
industry. Often local firms will come to these banks with different proposals for which they are
seeking finance.

Such project-by-project approaches may overlook important potential initiatives in agricultural

development. Most developing countries have an economic development plan of some formality
that identifies sectors to be given priority and areas where investment is needed. These
generalized areas for priority are too vague to become the basis of investment themselves, but
they lead to specific projects in crop or livestock production, land settlement, irrigation, food
processing, expansion of export crop production, and the like. In the process of preparing an
economic development plan, specific suggestions for projects usually will have come from the
operating agencies responsible for project implementation, and these agencies may be
encouraged to proceed with detailed project preparation.

Frequently, a separate sector survey of the current situation in agriculture will indicate what
initiatives are needed. Such surveys may be undertaken with the help of an international agency
or some agency for bilateral assistance. The sector survey will examine the current status of
agriculture, project future needs for agricultural products over the next decade or so, and
consider programs to improve the quality of rural life. It will examine prospects for expanding
agricultural exports by considering potential increases in production and the outlook for
marketing possibilities, and it will identify the gaps in existing plans and programs. The survey
will probably generate suggestions about new areas for investment and the relative priority to be
given different initiatives. It may even identify specific projects, especially larger ones, that merit
consideration for future investment.

Occasionally one hears that there is a lack of projects available for investment in developing
countries. Usually there is no shortage of proposals for projects that have been identified. But
there may be a shortage of projects prepared in sufficient detail to permit implementation.

The idea for project may come from the following sources.

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 From the need to make profitable use of available resources (this is for resources based
projects).
Market based projects arise from an identified demand in home or overseas market.
Need based project may arise from the need of community (company) to make available
some basic materials (services) requirements.
Project ideas can also emanate from government policy and plans.
From technical specialists like, entrepreneurs and local leaders are also common sources of
projects. Technical specialists and entrepreneurs can identify many areas where they feel
new investment might be profitable.

In general, the sources of project ideas can be broadly classified into macro and micro level.
I. Macro-level
1. National policies, strategies, sectoral, sub – sectoral or regional plans
2. General surveys like resource potential surveys, regional studies, master plan and
statistical publications, which indicate directly or indirectly investment opportunities.
3. Constraints on the development process due to shortage of essential infrastructure
facilities.
4. Unusual events such as, droughts, floods, earth – quakes, hostilities, etc
5. From multilateral or bilateral development agencies and as a result of regional or
international agreements in which the country participate.

II. Micro Level

1. The identification of unsatisfied demand or needs
2. The need to remove shortages in essential materials, services or facilities that constrain
development efforts;
3. The initiative of private or public enterprises in response to incentives provided by the
government;
4. The necessity to complement or expand investments previously undertaken;
5. The suggestions of financial institutions and development agencies;
6. Study of new Technological Development.

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The search for promising project idea is the first step towards establishing a successful venture.
As traditional saying goes “the key to success lies in getting into the right business at the right
time”. Identification is often the outcome of a triggering (iterative) process rather than an
analytical exercise. While the notion of identification is simple it is difficult to develop methods
or procedure for accomplishing it. However, there are certain broad guidelines which are helpful
in the generation and screening of project ideas.
Project identification commonly follows the following procedure
1. Generation of ideas
2. Monitoring the environment
3. Corporate appraisal (self assessment)
4. Preliminary screening
5. Project rating index.

3.1 Generation of ideas

Most of the new projects ideas are a result of specialized technical knowledge, marketing
expertise or some other competence.
To stimulate the flow of project idea the following are helpful.
1. Analysis of Strength, Weaknesses, Opportunities and Threats (SWOT). SWOT analysis
represents a conscious and deliberate, and dynamic effort by an organization to identify
opportunities that can be exploited. Periodic SWOT analysis facilitates the generation of
new idea.
2. Clear articulation of objectives. The operational objectives of the organization may help
to generate ideas. The operational objective of business firm for example, cost reduction,
productivity improvement, increase in capacity and expansion and growth can be helpful
in generating the project idea

3.2 Monitoring the environment

The organization must systematically monitor the environment in which it will operate. In other
words the organization is expected to monitor the following key environmental factors in relation
to each of identified ideas.

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 Economic aspects such as state of the economy, possible fluctuation in the economy, the
degree of integration with the world economy and others.
National policy such as sectoral policy, government program, tax policy, government
support, financial policy and others.
Technological factor such as availability of technology, accessibility of the available
technology, emergency of new technologies, receptiveness on the part of industry.
Socio demographic factor such as population size, income distribution, education level and
others.
The nature of competition (for business firms) such as number of firms in the industry,
market share for the top few firms, the nature of entry and others.
Nature of input supply such as availability of inputs cost of raw material, availability and
cost of energy, availability and cost of labor and availability and cost of money.

3.3 Self assessment

A realistic appraisal of the organization’s strength and weakness is essential to select the best
idea that can be realized as a successful venture. To screen the project idea in terms of this aspect
the following suggestions are helpful.
a) Analyze the industry (sector) and analyzing the organization in terms of,
 Its capacity (I.e., whether the organization has the capacity to implement or to put into
practice the proposed idea).
 Analyze the project in term of the benefit (profit) that it will provide to the society or
firm.
b) Examine the input or resources requirement and firms’ ability to make it available.
c) Review its innovativeness.
d) Study government plan, outlays, and guidelines: This analysis is important because;
 It will help to see if the idea is in line with the government priority area.
 To check if there are guidelines that needs to be followed if the project idea is acceptable.

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f) Suggestion of financial institutions and development agencies. This is about investigating
priority area of development agencies for the project.

3.4 Preliminary screening

In some case it is possible to have a long list of project ideas. In such cases some kind of
preliminary screening is required to eliminate ideas which are not promising. For that purpose
the following aspects could be considered.
a) Compatibility with the promoter: The idea should be compatible with the vision, mission,
and goal of the promoter. In business venture, it should be compatible with the owner’s
objective. In other words, It has to fit with the personality of the owner, acceptable to the
firm’s owner and it offers the prospect of rapid growth and high return.
b) Consistence with government priority: Evaluate the project idea in terms of the government
priority. Here we ask questions like the following.
Is the project consistent with the national goal and priority?
Are there any environmental effect?
Will there be any difficulty to obtain permission?
c) Availability of inputs: Whether inputs are available or not for the proposed project.
d) Adequacy of the market: Whether there will be adequate market for the proposed project.
e) Cost of the project: Calculate the cost of the project before starting the project.
f) Acceptability of risk level: The desirability of the project idea depends upon the level of risk
associated with it.
When a large number of project ideas are evaluated, it may be helpful to streamline the process
of preliminary screening.

3.5 Project rating index

For that purpose a preliminary evaluation may be translated into a project rating index.
Steps involved in the process of the project rating index are,
Identify factors relevant for project rating.
Assign weight to those factors (the weight are suppose to reflect their relative importance).
Rate the proposed idea on various factors using a suitable rating scale (typically a 5-7 point
scale is used).

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 For each factor, multiply the factor rating with the factor weight to get the factor score.
Add all the factor score to get the overall project rating index.

The following table illustrates the determination of the project rating index.

Factors Factor VG G A P VP Factor score

weight 5 4 3 2 1

Input availability or 0.25 X 0.75

availability of resources

Technical know how 0.1 X 0.40

Reasonableness of cost and 0.05 X 0.20

price factor

Adequacy of market or 0.15 X 0.30

market conditions

Complementary relationship 0.05 X 0.20

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 Stability 0.1 X 0.5

Dependency on firm’s strength 0.2 X 0.2

Consistency with government 0.1 X 0.1

policy

Availability of finance

Availability of infrastructure

Government incentives

Promoters experience

Total 1.00 3.15

Where VG-very good, G-good, A-average, P-poor, VP-very poor

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