GENERATION

& SCREENING
OF
PROJECT IDEAS
PRESENTED BY:
RAGHAV
MBA GENERAL
190101010059
 CONTENTS
• What Is Generation and screening of Ideas
• Steps In Generation And Screening Of A Project Idea
• Generation Of Idea
• Monitoring Of Environment
• Corporate Appraisal
• Tools For Identfying Investment Opportunities
• Scouting For Project Ideas
• Preliminary Screening
• Project Rating Index
• Sources Of Positve NPV
Generation and Screening of Ideas

Generation and Screening of a project idea begins when someone with specialized
knowledge or expertise or some other competence feels that he can offer a product
or service
♦ Which can cater to a presently unmet need and demand
♦ To serve a market where demand exceeds supply
♦ Which can effectively compete with similar products or services due to its better
quality/price etc.
An organization has to identify investment opportunities which are feasible and
promising before taking a full fledged project analysis to know which projects merit
further examination and appraisal
Generation and Screening of a project idea involves the following tasks
:
1. GENERATION OF IDEA

Most of the project idea involve combining existing field of

technology or offering variants of present product & services.

A panel is formed for the purpose of identifying investment

opportunities. It involves the following tasks which must be
carried out in order to come up with a creative idea –

(a) SWOT analysis

(b) Determination of objectives
(c) Creating Good environment
 2. MONITORING OF
ENVIRONMENT
An Organization should systematically monitor the environment and assess its competitive abilities in
order to profitably exploit opportunities present in the environment. The key sectors of the environment
that are to be studied are :-
(a) Economic Sector –
i. State of economy
ii. Overall rate of Growth
iii. Growth of primary, secondary and tertiary sectors
iv. Inflation rate
v. Linkage with world economy
vii. Trade Surplus/Deficit

(b) Government Sector –

i. Industrial policy
ii. Government programmes and projects
iii. Tax framework
iv. Subsidies, incentives, concessions
v. Import and export policies
(c) Technological Sector –
i. State of technology
ii. Emergence of new technology
iii. Receptiveness of the industry
iv. Access to technical know how

(d) Socio-demographic sector –

i. Population trends
ii. Income distribution
iii. Educational profile
iv. Employment of women
v. Attitude towards consumption and investment

(e) Competition Sector –

i. No. of firms and their market share
ii. Degree of homogeneity and production differentiation
iii. Entry barriers
iv. Marketing policies and prices
v. Comparison with substitutes in terms of quality/price/appeal etc.

(f) Supplier Sector – Availability and cost of raw material, energy and money
 3. CORPORATE
APPRAISAL –
It involves identification of corporate strengths and weaknesses. The important aspects

(a) Market and Distribution – that are to be considered are

i. Market Image & Market share.
:-
ii. Product line
iii. Marketing and Distribution cost
iv. Distribution Network

(b) Production and Operations –

i. Condition and capacity of plant and machinery
ii. Availability of raw materials and power
iii. Degree of vertical integration
iv. Location advantage
v. Cost structure – Fixed and Variable costs

(c) Research and Development –

i. Research capabilities of a firm
ii. Track record of new product developments
iii. Laboratories and testing facilities
iv. Coordination between research and other departments of the organization
(d) Corporate Resources and Personnel –
i. Corporate Image
ii. Clout with government and regulatory agencies
iii. Dynamism of top management
iv. Competence and commitment of employees
v. State of industrial relations

(e) Finance and Accounting –

i. Financial leverage and borrowing capacity
ii. Cost of capital
iii. Tax situation
iv. Relations with shareholders and creditors
v. Accounting and control system
vi. Cash flows and liquidity
 4. TOOLS FOR IDENTIFYING INVESTMENT
OPPORTUNITIES–

(a) Porter 5 forces Model –

It helps in analyzing profit potential of an
industry depending upon strength of –
i. Threat of new entrants
ii. Rivalry amongst existing companies
iii. Pressure from substitute products
iv. Bargaining power of buyer
v. Bargaining power of seller
 (b) Life cycle Approach → There are four stages a product goes through during his life cycle:

(a) Pioneering Stage – In this stage the technology and

product is new, there is high competition and very
few entrants survive this stage.
(b) Rapid Growth Stage – This stage witnesses a significant
expansion in sales and profit.
(c) Maturity Stage – It marks developed industries with
mature product and steady growth rate.
(d) Decline Stage – Due to introduction of new products
and changes in customer preference the industry incurs a
decline in market share and profits.
(c) Experience Curve → Experience curve analyzes
how
cost per unit changes with respect to accumulated volume
of production.
5. SCOUTING FOR PROJECT IDEAS –

Various sources to look for good project ideas include:-

i. Trade fairs and exhibitions
ii. Studying Government plans and guidelines
iii. Suggestion of financial institutions and development agencies
iv. Investigating local materials and resources
v. Analyzing performance of existing industries
vi. Analyzing social and economic trends
vii. Analyzing new technological developments
viii. Studying the consumption pattern of people abroad
ix. Stimulating creativity to produce
 6. PRELIMINARY SCREENING –

It refers to elimination of project ideas which are not promising. The factors to be considered while screening
for ideas are:-
• Compatibility with the promoter – The idea must be consistent with the interest, personality and resources of
entrepreneur.
• Consistency with Government priorities – The idea must be feasible with national goals and government
regulations.
• Availability of inputs – Availability of power, raw material, capital requirements, technology.
• Adequacy of Market – Growth in market, prospect of adequate sale, reasonable Return on Investment.
• Reasonableness of cost – The project must be able to make reasonable profits with respect to the costs
involved.
6. PRELIMINARY SCREENING –continued

Acceptability of risk level – The desirability of the project also depends upon
risks involved in executing it. In order to access risk the following factors must be
considered:-
• Project`s vulnerability to business cycles
• Change technology
• Competition from substitutes
• Government`s control over price and distribution

• Competition from imports

 7. PROJECT RATING INDEX –

It is a tool used for evaluating large number of project ideas. It helps in streamlining the process of preliminary
screening. Hence a preliminary evaluation may be converted in project rating index.

Steps to calculate project rating index:

I. Identifying the factors relevant for project rating
II. Assigning weights to these factors according to their relative importance(FW)
III. Rate the project proposal on various factors using suitable rating scale
(FR) (5 point scale or 7 point scale)
IV. For each factor multiply the factor rating with factor weight to get factor scores
(FR X FW = FS)
V. All the factor scores are added to get the overall project rating
index.Organization determines a cut off value and
the project below this cut off value are rejected.
 8. SOURCES OF THE POSITIVE NET PRESENT
VALUE
In order to select a profitable and feasible project, a project manager must carry out a fundamental analysis of the
product and factor market to know about entry barriers which lead to positive net present value. There are six
entry barriers which result in a positive NPV project. They are –
i. Economies of scale
ii. Product differentiation
iii. Cost advantage
iv. Marketing reach
v. Technological edge
vi. Government policy
 9.Entrepreneurial Skills
 An individual must possess the following traits and qualities in order to be a
successful entrepreneur –
i. He must be Willing to make sacrifices
ii. He must be a good Leader
iii. He must be able to make quick and rational decisions
iv. He must have confidence in the project
v. He must able to exploit market opportunities
vi. He must have strong ego in order to survive ups and downs of a business