WEL COME TO:

FUNDAMENTALS OF PROJECT MANAGMENT

By: Mr. Nuru A. (Ass. Prof. in Accounting & Finance)

 CHAPTER-1
1. INTRODUCTION
 1.1. Meaning and definition of project

Project can be defined in different ways:

 A project is a temporary endeavor undertaken to create a
unique products or services.
temporary means every project has a defined end.
Unique means that the product or service is
differentiated in some distinguished way from all similar
products or services.
 J. M. Juran defined that “a project is a problem scheduled
for solution.”
Problem refers to the gap
between where you are and where you want to be, with
an obstacle that prevents easy movement to
close the gap.
 …

 A project is a unique set of coordinated activities,

with a definite starting and finishing point,
undertaken by an individual or organization to
meet specific objectives within defined schedule,
cost and performance parameters.
 A project is a well-defined ad-hoc activity with
clear and specific objective; and has beginning
and end dates.
It requires allocation of resources with budget
and it should be completed on schedule with
specified quality standards.
 …

• From the above definitions,

 A project is a series of activities and tasks that

has specified objectives to be completed, with a
definite start and ends and fund limits, that
consumes human and non-human resources
and cut-across several functional units.
 1.2. Features of a project

 Projects are unique, temporary and required progressive

elaboration.
 A project has a fixed set of objectives.
- Projects are terminated when the objectives are
achieved or if the objectives cannot achieve.
 They are composed of interdependent activities.
 At the end of the project, a unique product, service or
result is created.
-Some degree of customization
is also a characteristic of projects.
 Carry risks and uncertainties.
 Project is managed against time, money and human
resource plans.
 …
 Project requires team work and ability of
participants to use effective leadership skill.
 Project Management lives in the world of
conflict.
-The management has to compete with
functional departments for “resources and
personnel”.
 Every project has a life cycle.
 A project requires various resources such as
people, organizations and materials, equipment
and facilities.
 1.3. Projects and Plans
 The basic difference between plan, project and
program is that:
 "Plan" means the wait and programming of
future activities of the company to achieve the
objectives. Planning embodies both the image of
the desired future and the principles on which it is
based to accomplish this is to say, the idea of ​the
will.
 The plan is the written explanation of goals,
objectives, targets and means to achieve it.
 The plan is a type of course of action consciously
wanted.
 …

 A project is short-term and designed to deliver a

specified output within time, cost and quality
parameters; and
 A temporary activity aimed at achieving
specific/narrow organization objectives.
 1.4. Project and program
 A project is short-term and designed to deliver a specified
output within time, cost and quality parameters; and
 a temporary activity aimed at achieving specific/narrow
organization objectives.
 A program is a long-term managed portfolio of multiple
projects designed to produce outcomes.
 are organization activities aimed at achieving broader
organization objectives by coordinating a group of
projects.
 programs are much wider in scope compared to projects.
 A program refers to multiple projects which are managed
and delivered as a single package.
 Additional points on How projects and programs differ?

 Structure:
– The components of a project are specific
and exact.
– The scope and goals of a project are well-
defined – while programs are typically less
clear-cut.
– Because a program covers multiple projects
– a program team tends to be larger as it
also incorporates the project managers and
their project team members.
 …
 Effort:
– A project represents a single, focused Endeavour.
– A program is a collection of projects – together
all the projects form a connected package of
work. The different projects complement each
other to assist the program in achieving its
overall objectives. It’s likely the different projects
within a program will overlap - the program
manager will therefore assess these overlaps and
work with the relevant project managers to
ensure the program’s smooth progression.
 …
 Length:
– While some projects take several years – the
typical project will not take very long to
complete.
– Programs often take a very long time to
complete as they intend to deliver more. It’s
therefore common for programs to be
organized into phases or tranches.
– A particularly long project may also be
organized into multiple phases – but this is less
common.
 …

 Benefits:
– Projects focus on achieving tangible outputs,
i.e. what you gain upon completing the
project.
– Programs focus on outcomes – which are often
not tangible. The benefits provided by a
program depend on the collective benefits of
its projects. Examples of a program outcome
include a cultural or political change within an
organization – or a change in the way in which
an organization operates.
 1.5. Project management
1.5.1. What is project management?
 It is a dynamic process conducted within a defined
set of constraints that organizes and utilizes
appropriate resources in a controlled and
structured manner in order to achieve
some clearly defined objectives.
 It is the discipline of planning, organizing, directing,
and managing resources to achieve specific goals.
 Key areas to consider when looking at project
management are management of time, people and
other resources.
 1.5.2. The project management process
• The project management process means
planning the work and then working the plan,
that is, process of first establishing a plan and
then implementing that plan to accomplish the
project objective.
1) Clearly define the project objective: the
definition must be agreed upon by the customer
and the individual or organization that will
perform the project.
 …
2) Divide and subdivide the project scope into
major “pieces,” or work packages.
3) Define the specific activities that need to be
performed for each work package in order to
accomplish the project objective.
4) Make a time estimate for how long it will take to
complete each activity.
 It is also necessary to determine which types of
resources and how many of each resource are
needed for each activity to be completed within
the estimated duration.
 …

5) Make a cost estimate for each activity: the cost is

based on the types and quantities of resources
required for each activity.
6) Calculate a project schedule and budget to
determine whether the project can be completed
within the required time, with the allotted funds,
and with the available resource.
 If not, adjustments must be made to the project
scope, activity time estimates, or resource
assignments until an achievable, realistic baseline
plan (a roadmap for accomplishing the project scope
on time and within budget) can be established.
 …
 Once a baseline plan has been established, it
must be implemented.
 This involves performing the work according to
the plan and controlling the work so that the
project scope is achieved within the budget and
schedule, to the customer’s satisfaction.
Thank You!!
 WEL COME TO:
CHAPTER-2
2. PROJECT CYCLE
What can this picture tell you?
The Project life cycle matches with life cycle of
human beings !!
 2.1. Meaning and Definition of Project Cycle
 Every program, project, or product has certain phases
of development known as life-cycle phases.
 Project life cycle refers to the various stages through
which a project passes from time of its inceptions up
to its implementation and realization of the
objectives.
 Project life cycle is a collection of
generally sequential project phases, whose name and
number are determined by the control needs of
organization or organizations involved in the project.
 …

 A clear understanding of phases permits

managers and executives to better control
resources to achieve goals.
 Project life cycle differs from organization to
organization, from project to project.
 Different organizations develop their own project
cycle.
For example, the project life cycle of an IT project include:

1. Feasibility: Definition, cost benefits, acceptance criteria,

time and cost estimates;
2. Evaluation: Definitions of requirements, performance
criteria, processes;
3. Function: Functional and operational requirements,
interfaces, system design;
4. Authorization: Approvals, permits, firming up procedures;
5. Design and build: Detail design, system integration,
screen building, documentation;
6. Implementation: Integration and acceptance testing,
installation, training;
7. Operation: Data loading, support set-up, hand-over.
 …
 The life-cycle in defense project include: concept,
feasibility, project definition, design and
development, production, in-service and disposal.
 These cycles clearly shows the phases required for
a typical weapons system, where concept,
feasibility and project definition are the
responsibility of the ministry of defense;
 Design, development and production are carried
out by the manufacturer, and
 In-service and disposal are the phases when the
weapon is in the hands of the armed forces.
 …
 Even though there are no hard and fast rules
where the demarcation points are, as each
organization will
define its own phases and life-cycles to suit its
method of working; usually most projects (medium
to large) commonly follow the following phases:
 Conceptual
 Planning
 Testing
 Implementation
 Closure or completion
 …

 The first phase, the conceptual phase, includes

finding and identifying project ideas. It is also the
preliminary evaluation of an idea.
 The importance of this phase is the preliminary
analysis of risk and the resulting impact on the
time, cost, and performance requirements,
together with the potential impact on company
resources.
 …
 The second phase is the planning phase.
 It is mainly a refinement of the elements in the
conceptual phase and requires a firm identification
of the resources required and the establishment of
realistic time, cost, and performance parameters.
 This phase also includes the initial preparation of
documentation necessary to support the system.
 For a project based on competitive bidding, the
conceptual phase would include the decision of
whether to bid, and the planning phase would
include the development of the total bid package
(i.e., time, schedule, cost, and performance).
 …
 The third phase testing is predominantly a testing
and final standardization effort so that operations
can begin.
 Almost all documentation must be completed in this
phase.
 The fourth phase is the implementation phase, which
integrates the project’s product or services into the
existing organization.
 If the project was developed for establishment of a
marketable product, then this phase could include
the product life-cycle phases of market introduction,
growth, maturity, and a portion of deterioration.
 …
• The final phase is closure and includes the
reallocation of resources.
• This is the stage where performance test is
carried out and the deliverables are transferred
to clients.
• The closure phase evaluates the efforts of the
total system and serves as input to the
conceptual phases for new projects and systems.
• This final phase also has an impact on other
ongoing projects with regard to identifying
priorities.
 2.2. Project Life Cycle Models

• There are various models developed by different

authors, usually, related to sponsor
organizations.
• Here in this chapter, models used in the World
Bank and United Nations Industrial Development
Organization (UNIDO) have explained.
 2.2. World Bank Project Cycle

• Baum (1978), an employee for the World Bank, has

been developed the following five project cycles.
 Identification: selection of viable ideas.
 Preparation and analysis: determine whether the
project is viable or not.
 Appraisal: audit whether the preparation process is
carried out adequately.
 Implementation: actual implementation of the
project.
 Evaluation: evaluate whether the project has
enabled to achieve the desired objectives since its
implementation.
Figure: 2.1 Baum (World Bank) Project Life Cycles

Project Identification

Project Preparation &

Project Evaluation
Analysis

Project Financing

Project Project
Implementation Appraisal
 1. Project Identification:
 It is the initial stage of a project. It involves
identifying environmental problems to be
addressed and the needs and interests of
possible beneficiaries and stakeholders.
 The problems and the most realistic and effective
interventions are analyzed, and ideas for projects
and other actions are identified and screened.
 A project idea may originate from multiple
sources.
 …

 Many of the most important projects in

developing countries emerge from political
commitment of national leaders, as a response
to crises, emergencies and external threats or to
foreign government policies and assistance
agency priorities, previous project failures, and
so on.
 In general project ideas can be generated both
from micro level and macro level sources.
 …
 Generally, the identification stage is one of identifying the
problems, which needed to be addressed, and analyzing the
ways in which they can be addressed.
 This would include:
✓ Analyzing of existing situation
✓ Problems/needs identification
✓ Prioritization of ideas
✓ Selection of project ideas
✓ Definition of the project ideas
✓ Consultations with stakeholders
✓ Establishing of overall objectives.
 The two most important steps in the project identification
are the analysis of the initial situation (problem and context
analysis), and the elaboration and prioritizing of project
ideas.
 a. Situational analysis:
 An environmental situation needs to be assessed
and analyzed.
 A situation analysis should include analyses of
needs, interests, strengths and weaknesses of key
stakeholders and beneficiaries.
 This objective analysis enhances understanding of
the likely causes and linkages between existing
problems and the needed actions.
 A situational analysis based on a scientifically sound
conceptual framework generates key actions and
strategies to be applied for the intended project
intervention.
 …

• Latest country reports and statistics prepared by

Governments, researchers, or international
organizations on the relevant environmental,
social and economic issues, including gender and
poverty, can facilitate the assessment.
 b. Elaboration and prioritizing of project ideas
 Project Prioritization is a highly strategic task. Finding the
right criteria is critical, but can be tricky. This listed below
will help you:
• Structure your brainstorming
• Get a strong buy-in to the list of criteria and weighting
such criteria
• More quickly build consensus with stakeholders
 Fill in the form to access criteria including the following
categories:
• Strategic alignment - promote projects that align with the
strategy
• Organizational efficiency - promote projects that improve
the effectiveness of our people
 …
• Sustainability - promote projects that increase the
positive social and environmental impact of our business
• Project risk - promote projects that have lower risk of
failure
• Organizational risk - promote projects that minimize risk
of our business
• Resilience - promote projects that increase the ability of
the organization to respond to environmental changes
• Technology fit - promote projects that leverage existing
infrastructure and skills
• Financial factors - promote projects that maximize the
financial contribution to the company
Group Assignment

Identify all possible project ideas to be

implemented in fafan zone either by analyzing
situations (problem and context analysis) or
prioritizing of project ideas.
 b. Preliminary screening:
 It is conducted to reduce to manageable number
the project alternatives to which more work and
time will be devoted.
 As a result of Preliminary screening exercise,
some of the project alternatives will be rejected
and those that are promising will be advanced to
the next stage.
Group Assignment
Select one best project ideas from among many
ideas in fafan zone.

Discuss the steps/procedures/techniques you

followed to screen in to one project idea
 c. Pre-feasibility study:
 At this step, promising options should be
investigated in systematic manner to suggest
which are to be eliminated.
 That is, at this stage preliminary study of the
feasibility study is conducted such as; availability
of raw materials, technical, financial and
economic feasibility is conducted.
 2. Project Preparation (feasibility study):
• Also called project formulation covers the
establishment of technical, demand analysis,
supply of raw materials, choice of technology,
financial, economic, social and institutional
aspects of the project.
• Pre-feasibility study indicated that the project
enters in to the next stage for more and
sophisticated analysis supported by accurate
information.
• Generally, project preparation stage involves the
detailed planning of the project idea.
 …

 The result of feasibility study indicates a set of

tangible proposals with an associated set of costs
and benefits.
 Furthermore, this stage is one that define more
clearly the actual project, who will do it, what
resources are available, and how it will be divided in
to different tasks.
 This would include:
✓Specification of objectives and results,
✓Identifying resources available for the project,
✓Identifying resources needed for the project,
✓Design of the project,
✓ Packaging and planning of the project.
 3. Project Appraisal:
 Project appraisal can be defined as second look at a
project report by a person or an institution that is in no
way involved in its preparation.
 It helps in taking an entirely independent view of the
project.
 Appraisal is the comprehensive and systematic
assessment of all aspects of the proposed project in order
that a decision can be made as to whether to proceed,
discarding the project or alteration of some of the plans.
 Usually, the appraisers are the central economic
authorities responsible for drafting the overall
development strategy and entrusted with major decisions
on matters relating to this strategy.
 …

 During appraisal, it should be verified that the

proposed project, in combination with other
policies, contributes the maximum possible
towards achieving certain development goals.
 When appraisal is completed, an appraisal report
is prepared which contains the findings and final
recommendations.
 The recommendations may be to approve,
reformulate, postpone or abandon the project
under review.
 …
• The recommendation can be given by covering at least
seven aspects of a project, each of which must have been
given special consideration during the project preparation
phase:
1. Technical: does the proposed project work in the way
suggested?
2. Financial: have the financial requirement of the project
been properly calculated, their sources identified and
reasonable plans made for their repayment? Where this is
necessary?
3. Commercial: how will the necessary inputs for the project
be supplied and are the arrangements for the disposal of
the product satisfactory?
4. Incentives: does things go as they are planned?
 …

5. Economic: does the proposed project consistent

from the view point of national development?
6. Managerial: does their exist capable manager to
run the planned project successfully and are they
given sufficient power and scope to do what is
required?
7. Organizational: is the project organized internally
and externally into units, etc so as to allow the
proposals to be carried out properly, and to allow
for change as the project develops?
 4. Project Implementation:
• No matter how sophisticated or detail the project
preparation work, it has no value unless it is
transformed into action or implemented.
• Implementation stage covers the actual
development or construction of the project up to
the point it becomes fully operational.
• It includes monitoring of all aspects of the work or
activity as it proceeds. It's where the earlier
preparations and designs, plans and analysis are
tested in the highlight of reality.
 …
• The execution of the project should be supervised
closely and progress should be reported regularly
to ensure that the implementation is progressing
without deviating from the envisaged path.
• The follow up exercise or ex-post evaluation is
considered as continuation of supervision to
assess whether the objectives of the project have
been reached.
• The major priority during this stage is to ensure
that the project is carried out in the way and
within the period that was planned.
 …
• Thus, recording, monitoring, and progress
reporting are important activities so as to allow
management to become aware of difficulties as
they arise.
• Generally, the Implementation phase is one of
actually performing the project and ensuring that
the objectives are met and the out puts made.
 …

 This includes:
✓ Mobilizing of resources for each task and
objectives,
✓ Project marketing,
✓ Ongoing monitoring and reporting
arrangement,
✓ Identifying problems,
✓ Addressing failures,
✓ Modification of the planned results and project
objectives as appropriate.
 5. Project Evaluation:
• Once a project has been carried out, it is often
useful to look back over what took-place, to
compare actual progress with the plans, and to
judge whether the decisions and actions taken
were responsible and useful.
• Evaluation can help not only in the management of
existing project but also help in the planning of
future projects.
• As a result of undertaking evaluation, major
achievements and problems are identified,
recommendations for remedial action made and
lessons of experience drawn.
 …

• Generally, the evaluation phase is the process of

reviewing the completed project to see whether
the intended benefits are likely to be achieved.
• It should be a natural part of the process and not
seen as a punishment for a project, which has
failed to perform. This includes:
✓ Assessing whether the contractor has truly
completed the task,
✓ Identifying best practices for further projects,
✓ Identifying what resources are required for
future,
✓ Identifying the need for future projects.
 2.3. UNIDO Project Cycle
 UNIDO gives emphasis to industrial projects.
 It is more practical than conceptual.
 Beherens and Hawranck (1991) in collaboration
with UNIDO, identifies three phases:
o pre-investment,
o investment and
o operational phases
 1. Pre-investment Phase:
The pre-investment phase comprises several stages:
 Identification of investment opportunities
normally called opportunity studies,
 Pre-feasibility study (preliminary project selection
and definition)
 Feasibility studies (project preparation)
 Project appraisal and investment decisions.
 i. Project Identification:
 Project identification amounts to finding projects
which could contribute towards achieving specified
development objectives.
 In practice, however, projects are not always derived
from national and sectoral plans; they originate from
multiple sources such as investment promotion
agencies, private consultants and private investors.
 Constraints, needs and demand should be
interpreted broadly to include, for example, foreign
exchange constraints that might necessitate projects
for import substitution or export promotion.
 II. Preliminary Screening:
• Once some project ideas have been put forward,
the first step is to select one or more of them as
potentially viable.
• This calls for a quick preliminary screening by
experienced professionals who could also modify
some of the proposals.
• At this stage, the screening criteria are vague and
rough becoming specific and refined as project
planning advances.
• During preliminary selection the analyst 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 overambitious sales and profitability; etc.
 Since the criteria are nebulous much depends on the
experience and impartiality of the
professionals applying them, It is necessary to
conduct this screening, even with indistinct
criteria, in order to reduce to a manageable number,
the project alternatives to which more work and time
will be devoted.
 III. Pre-feasibility Studies:
• Following the preliminary screening, promising project
options should be investigated in a systematic manner.
• This requires the preparation of brief reports that indicate
in sufficient, but not painstaking detail of the project
versions that are still promising and suggest which ones
should be eliminated.
• Sophisticated analysis, of the technical, financial,
economic social and institutional aspects of the project is
postponed to a later stage since feasibility studies are
costly and time-consuming.
• However, the pre-feasibility reports should indicate which
of these aspects deserve particular attention during the
subsequent step. Reports of this type are often called pre-
feasibility.
 …
• The objectives of the pre-feasibility study are to
determine whether:
 All possible project alternatives have been
examined,
 The project idea justifies a detailed analysis by a
feasibility study,
 Any aspects of the project critical to the project
that may require in depth investigation through
functional studies,
 Environmental situation at the planned site and the
potential impact of the projected production
process are line with national standards.
 Content of the Pre-feasibility Study:
• To enable the relevant authorities to decide on the
merits of various project options, the pre-feasibility
study should, although briefly, discuss:
i. the structure and objectives of the project;
ii. the nature and size of the demand for the output
or the needs that it would satisfy, together with the
foreseen beneficiary groups;
iii. the availability of the most important materials
and human inputs;
iv. basic alternative technologies available and their
merits and weaknesses;
…

v. approximate investment and operation costs as

well as expected revenues and other benefits;
vi. rough estimates of financial and economic
returns;
vii. any major factor that is likely to have and
important effect on the project; and
viii. What further information on the technical,
financial, economic or institutional aspects of the
project should be acquired.
 IV. Project Preparation (Feasibility Studies):
• If the pre-feasibility study indicates that the
project is promising and further work is justified,
the project enters the stage of preparation.
• The project, already defined in a sketchy form, is
now being advanced to a level at which it can be
appraised thoroughly before a decision is taken
on whether to implement it.
• Project preparation takes the form of a feasibility
study conducted by the agency sponsoring the
project or by consultants.
 What is the difference between a
pre-feasibility and a feasibility study?
 The answer is :

• They differ only with respect to the amount of

work needed to decide if a project is viable.
• The table of contents is the same in both; it is the
details and the sophistication that vary.
• It analysis of the project’s marketing, technical,
financial, economic and institutional aspects
should be comprehensive enough to allow the
policy makers to decide on the future of the
project with confidence.
 V. Appraisal and Investment Decision:
• Up to the completion of preparation, the project
has been nursed by the sponsoring agency; now
it changes hands.
• The project proposal in the form of a feasibility
study is submitted to the investment decision
makers for a broad and impartial appraisal.
• Appraisal is the comprehensive and systematic
assessment of all aspects of the proposed project.
• After appraising the project carefully, appraisers
will decide whether it will be implemented or
not, with or without minor modifications.
 2. The Investment Phase: The Project in Motion
• The next stage in the project is the actual
implementation of the project, followed by
operation.
• Implementation begins immediately after the
final decision on the project ends when it starts
rendering the benefits envisaged.
• more action and less thinking is needed. It is the
time when the conclusions reached and the
decisions made are put into action.
 …
• Detailed designs and specifications should be
drawn, tender documents have to be prepared,
bids should be invited and evaluated, orders for
inputs have to be placed and contracts to be
signed, workers should be hired and put to works
materials have to be moved to the site, etc.
• These are complicated and interrelated activities
that should be programmed carefully and
executed diligently if delays and problems are to
be avoided, or at least minimized.
 …

• The phase is divided into the following stages:

a) Establishing the legal, financial and organizational basis
for the implementation of the project.
b) Technology acquisition and transfer, including basic
engineering.
c) Detailed engineering design and contracting, including
tendering, evaluation of bids and negotiations.
d) Acquisition of land construction work and installation.
e) Pre-production marketing, including the securing of
supplies and setting up of the administration of the firm.
f) Recruitment and training of personnel.
g) Plant commissioning and start-up.
 3. The Operational Phase
• This is the production phase that commences
commissioning and start-up which includes; expansion
and innovation, replacement and rehabilitation.
• Commissioning and start-up: requires handover of the
building to project sponsor or promoter.
• Start-up (delivery stage) is brief but technically critical
span in project development.
• It success indicates the effectiveness of the planning
and execution of the project.
• The resultant challenges of this phase are viewed from
the short-term perspective and long-term
perspective.
 …

• The short term view point relates to:

✓ Application of products
✓ Operation of equipments
✓ Labor productivity and skill etc.
• The long-term view point relates to:
✓ Production cots,
✓ Income from sales.
✓ Chosen strategies
✓ production and marketing costs
End of Chapter - 2
Chapter 3: PROJECT IDENTIFICATION
 3.1. Project Idea – meaning

• Project Idea- is the idea that uses as an input to

initiate a new project.
• The first phase of the project life cycle involves the
identification of need, problem or opportunity and
can result in customer’s requesting proposals from
individuals, project team or organizations
(contractors) to address the identified needs or
solve the problem.
• Need may be identified formally or informally
during meeting or discussion among group of
individuals.
 …

• Project identification also includes collection,

compilation and analysis of economic data for
the purpose of locating possible opportunities for
investment.
• Identification of such opportunities requires
imagination, sensitivity to environmental
changes, and realistic assessment of what firms
can do.
 Stimulating the flow of ideas:
 Often firms adopt a somewhat casual and haphazard
approach for the generating of project idea.
 To stimulate the flow of ideas the following are
helpful:
 SWOT analysis
 Clear articulation of objectives
 SWOT analysis represents conscious deliberate and
systematic effort by an organization to identify
opportunities that can be profitable exploited by it.
 Hence, Periodic SWOT analysis facilitates the
generation of ideas.
 …
• Clear Articulation of objectives of a firm may be
use one or more of the following:
• Cost reduction; Productivity improvement;
Increase in capacity utilization; Improvement in
contribution margin and Expansion in to
promising fields.
• A clear articulation and prioritization of
objectives helps in channelizing the efforts of
employee and prods them to think more
imaginatively.
 3.2. Sources of Project Ideas

 Good project idea – the key to success are elusive.

So, a wide variety of sources should be trapped to
identify project ideas.
 For our practical purpose, the sources of project
ideas are mainly classified into two types:
1. Macro sources of project ideas
2. Micro sources of project ideas
 3.2. Macro Sources of Project Idea:
 Macro sources otherwise called Sector Sources
of project ideas.
 In this level, it will require an analysis of the
overall investment potential in developing
countries and the general interest of developed
countries.
 General opportunity study or Macro study may
be divided into the following three categories:
A. Area Study
B. Industry Study
C. Resource Based Study
 A. Area Study:
• Area study is made to identify opportunities in a
given area such as administrative province; a back
ward region etc. and the following factors should
be considered while making area studies.
i) Size of the area and physical features of it.
ii) Population occupational pattern, per capita
income and social background
iii) Infrastructure facilities like transport, power,
telecommunication etc.
iv) Exploited and unexploited factors of production
and elements of production, mainly labor
and capital and other natural resources.
…

v) Labor laws, minimum wages, and holiday, facilities

required in factory, bonus rules, and pension rules, working
hours.
vi) Level of completion
vii) Government concessions include, tax holidays, subsided
power and water.
viii) Location of market, it covers nearness to domestic and
international market
ix) Export potential, if focuses on possibilities of export.
x) Climate requirements for workers, companies, product
xi) Estimated cost of project
xii) Availability of raw materials depends upon nature of
the product.
xiii) Availability of cheap labor.
 B. Industry Studies:
• These are made to identify opportunities in
industrial branches like building material or food
processing.
• The following factors are considered while making
sub sector studies:
a. The rate of sub sector in the industry of country.
b. Size and growth rate of industry.
c. Present size and growth rate of demands for
items that are not imported and for those which
are fully or partial for each item.
…

d. Rough projections of demand for each item.

e. Identification of the items in short supply that
have growth or export potential
f. A broad survey of raw materials; locally
available.
g. Transport cost and available infrastructure
facilities. Transport cost to bring raw material to
factory, and to distribute finished goods to the
wholesalers and retailers etc.
 C. Resource Based Studies:
• These studies are made to reveal opportunities
based on the utilization of natural, agricultural or
industrial products such as forest based, petrol
chemical industries.
• The following are considered while making
resource-based studies:
➢ Features of the resources (Size, shape etc.) past
rate of growth (mainly agricultural) and potential
for future growth.
➢ The role of the resources in the national
economy in the country and export potential.
…

➢ Industry currently based on resources (finished

goods of the industry can be used as raw
material to other industry). This growth capital
employed, labor engaged,
productivity future plans and growth product.
➢ Major constraints and conditions in the
growth of industries based on the resource.
➢ Estimate growth in demand and prospects of
export items that could utilize the resources.
 At Macro-level, project ideas may originate from:
i. National, sectoral, or regional plans and
strategies supplemented by special studies,
often called opportunity studies, conducted with
the explicit aim of translating national and
sectoral programmes into specific projects;
ii. Constraints in the development process due to
shortages of essential infrastructure facilities,
problems in the balance of payments, etc.;
iii. Government’s decision to correct social and
regional inequalities or to satisfy basic needs of
the people through development projects;
 …

iv. Possible external threat that necessitates

projects aiming at achieving, for example, self-
sufficiency in basic materials, energy,
transportation, etc.;
v. Unusual events such as droughts, floods, earth-
quakes, hostilities, etc.; and
vi. Government’s decision to create locally project
implementing capacity in such areas as
construction etc.
 3.3 Micro Approach /Specific Opportunities
studies / Enterprise Approach:
• The Micro Approach is mainly concerned with
review of investment ideas of industries, investment
offices and financial institutions of countries.
• A Specific project opportunity studies are concerned
with initial identification of general investment
opportunities in the form of products with the
potential form of domestic manufacture.
• A specific project opportunity study which is more
common than the general opportunity study, may
be defined as transformation of project into a broad
investment position.
 …

• The specific opportunity study should consider the

following factors:
i) Natural resources available
j) Existing agriculture pattern
k) Future demand
l) Imports I order to identify area for import substitution
m) Environment impact
n) Possibilities for diversification
o) The general investment climate
p) Industry policy Availability of cost of production
factors
q) Export possibilities
r) Possible inter linkage with other industries
 At Micro-level, project ideas may originate from:
i. The identification of unsatisfied demand or needs;
ii. The existence of unused or underutilized natural or
human resources and the perception of
opportunities for their efficient use;
iii. The need to remove shortages in essential
materials, services or facilities that constrain the
development effort;
iv. The initiative of private or public enterprises in
response to incentives provided by the
government;
 …

v. The necessity to complement or expand

investments previously undertaken; and
vi. The desire of local groups or organizations to
enhance their economic independence and
improve their welfare.
 Project proposals could also originate from
foreign firms either in response to government
investment incentives because they consider
local production a better way to secure a
substantial share of the domestic market for
their products.
 3.2.3. Other sources of Project Ideas:
1. Analyze the performance of Existing industries
2. Examine the inputs and outputs of various industries
3. Review import and Exports
4. Study plan outlays and Governmental Guidelines
5. Suggestions of financial institutions and Development Agencies
6. Investigate Local Materials and Resource
7. Analyze Economic and Social Trends
8. Draw clues from Consumption abroad
9. Explore the possibilities of reviving sick units
10. Identify unfulfilled psychological needs
11. Attend trade fairs
12. Stimulate creativity for generating new product ideas
13. Change factors
End of Chapter 3 with thanks !!
Chapter 4 PROJECT PREPARATION
(Feasibility Studies)
 4.1 Markets and Demand Analysis:
• The first step in project analysis is to estimate the
potential size of the market for the product proposed to
be manufactured and get an idea about the market
share that is likely to be captured.
• The key steps involved in market and demand analysis
are organized into seven sections as follows:
✓ Situational analysis and specification of objectives
✓ Collection of primary and secondary information
✓ Conducting market survey
✓ Characterization of the market
✓ Demand forecasting
✓ Uncertainties in demand forecasting
✓ Market planning
 1. Situational Analysis and Specification of
Objectives:
• Situational analysis generates enough data to
measure the market and get a reliable hand over
projected demand and revenues.
• To carry out such a study, it is necessary to spell
out its objectives clearly and comprehensively.
• Often, this means that the inscriptive and
informal goals that guide situational analysis need
to be expanded and articulated with greater
clarity.
 …

• To illustrate, suppose that a small but

technological competent firm has developed an
air cooler based on a new principle that appears
to offer several advantage over the conventional
(former) air cooler.
• The chief executive of the firm needs information
about where and how to market the new air
cooler.
• The objectives of market and demand analysis in
this case, may be to answer the following
questions:
 …
• Who are the buyers of air cooler?
• What is the total current demand for air cooler?
• How is the demand temporarily distributed (pattern of sales
over the year) and geographically?
• What is the break-up of demand for air coolers of different
size?
• What prices will the customers be willing to pay for the
improved air cooler?
• How can potential customers be convinced about the
superiority of the new cooler?
• What price and warranty will ensure its acceptance?
• What channel of distribution are most suited for air cooler?
What trade margin will induce distributors to carry it?
• What are the prospects of immediate sales?
 2. Collection of Secondary Information:
• Information may be obtained from secondary
and /or primary sources.
• Secondary information is information that has
been gathered in some other context and is
already available.
• Primary information, on the other hand,
represents information that is collected for the
first time to meet the specific purpose on
hand.
• Secondary information provides the base and the
starting point for the market and demand analysis.
 …

• The important sources of secondary information

that is useful for market and demand analysis are
as follows:
a) National level Report prepared by the
Government
b) Plan Report by the government
c) Statistical abstract
d) Economic Survey
e) Annual Reports by the Ministry
f) Bulletin of Banks
g) Publication of Advertising agencies
h) Other publications
 3. Conduct Market survey
• The Market survey may be a census survey and
sample survey.
• In a census survey, the entire population is
covered.
• Census surveys are employed principally for
intermediate goods and investment goods when
such goods are used by a small number of firms.
• The information sought in a market survey may
relate to one or more of the following:
 …

• Total demand and rate of growth of demand, Demand

in different segments of the market, Income and price
elasticity’s of demand, Motives for buying, Purchasing
plans and intentions, Satisfaction with existing
products, Unsatisfied needs, Attitude toward various
products, Distribute trade practices and preferences
and Socio, economic characteristics of buyers.
• Since, the researcher cannot survey the entire
universe or population that they are interested, they
usually draw a sample of subjects from the population
for investigation.
• Typically, sample survey consists of the following
steps.
 …

✓Define the target population

 Select the sampling scheme and sample size
✓ Develop the questionnaire
✓ Recruit and train the field investigators
✓ Obtain information as per questionnaire from
the sample respondents
✓ Scrutinize the information gathered
✓ Analyze and interpret the information
 3. Characterization of the market:
 Based on information gathered from secondary
sources and though the market survey, the market for
the product/service may be described in terms of the
following;
 Effective demand in the past and present,
 break down of demand,
 Price,
 Methods of distribution and sales promotion,
 Consumers,
 Supply and competition and
 Government policy must be described.
 4. Demand forecasting:
 After gathering information about various
aspects of the market and demand from primary
and secondary sources, attempt may be made to
estimate future demand.
 A wide range of forecasting method is available
to the market analyst.
A. Qualitative Methods
B. Time Series Projection Methods
B. Causal Method
 A. Qualitative Methods:
1. Jury of Executive Method: This method is very popular in
practice, involves soliciting the opinions of a group of
managers on expected future sales and combining them into a
sales estimate.
2. Delphi Method: This method is used for eliciting the opinions
of a group of experts with the help of a
mail survey.
 The steps involved in Delphi method are:
 A group of experts is sent a questionnaire by mail and asked
their views
 The responses received from the experts are summarized.
 The process may be continued for one or more rounds till
reasonable agreements emerges in the
view of experts.
 B. Time Series Projection Methods:
1. Trend projection Method: this method involves in extrapolating
the past trend to the future.
1. Trend projection method involves the following steps:
➢ Determining the trend of consumption by analyzing past
consumption statistics
➢ Projecting the future consumption by extrapolating the
past trend.
• When the trend projection method is used, the most
commonly employed relationship is the linear
relationship.
Y =  + bX , Where, Y = trend value (forecast for demand given X)
 = the intercept of the relationship
b=slope of the relationship
X = independent variable (given in years)
 …

a = Y – bX, Where, Y= averages of all Ys;

X = averages of all Xs
2. Exponential smoothing Method: In exponential
smoothing, forecasts are modified in the light of
observed errors.
 It is a type of moving average forecasting technique, which
weights past data in an exponential manner so that the
most recent data carry more weight in the moving average.
 With simple exponential smoothing, the forecast is made
up of the last period forecast plus a portion of the
difference between the last period actual demand and the
last-period actual demand and the last period forecast.
 …
F(t+1) = Dt + (1- )Ft, Where,
F (t+1) =forecast for the next period
Dt= actual demand for the present period
Ft=Forecast for the present period
=Exponential smoothing constant
3. Moving Average Method: Moving average method
of sales forecasting, the forecast for the next period
is equal to the average of the sales for several
preceding periods.
Moving Average Forecast = Sum of Demand in Previous n
Periods
n
where, n= moving periods
 C. Causal method
1. Chain ratio method: The potential sales of a
product may be estimated by applying a series
of factors to a measure of aggregate demand.
 The chain ratio method uses a simple analytical
approach to demand estimation.
 However, its reliability is critically dependent on
the ratios and rates of usage used in the process
of determining the sales potential.
 While some of the ratios and rates of usage may
be based on objective proportions, others will
have to be subjectively defined.
 …
2. Consumption Level Method: This method estimates
consumption level on the basis of elasticity coefficients,
the important ones being the income elasticity of demand
and the price elasticity of demand.
i. Income Elasticity of Demand: The income elasticity of
demand reflects the responsiveness of demand to
variations in income. It is measured as follows.
EI = Q2-Q1 X I1 + I2
I2-I1 Q1 + Q2, Where,
Q1 = Quantity demanded in the base year
Q2=Quantity level in the base year
I1= Income level in the base year
I2 = Income level in the following year
 …

ii. Price Elasticity of Demand: The price elasticity o

demand measures the responsiveness of
demand to variations in price.
EI = Q2-Q1 X P1 + P2
P2-P1 Q1 + Q2, Where,
Q1= Quantity demanded in the base year
Q2= Quantity level in the base year
P1= Price level in the base year
P2 = Price level in the following year
 …

3) End Use Method: Suitable for estimating the demand

for intermediate products, the end use method, also
referred as the consumption coefficient method
involves the following steps.
- Identify the possible use of the product.
- Obtain the input-output coefficients with respect to
the product whose demand forecasting is being
attempted and the industries using this product as an
item,
- Obtain the desired/target level of output of all-
consuming industries, and its probable demand for
final consumption and exports in the prediction.
- Forecast the desired demand.
 …

4) Leading indicator method: Leading indicators are

variables, which change ahead of other variables, the
lagging variables.
 Hence, observed changes in leading indicator may be
used to predict the changes in lagging variables.
 For example, the change in the level of urbanization (a
leading indicator) may be used to predict the change in
the demand for air conditioners (a lagging variable).
 Two basic steps are involved in using the leading indicator
method:
➢ First, identify the appropriate leading indicator(s)
➢ Second, establish the relationship between the leading
indicator (s) and variables to the forecast.
 …

5) Econometric Method: An Econometric method is a

mathematical representation of economic
relationship(s) derived from economic theory.
• The primary objective of Econometric behavior of
the economic variables incorporated in the model.
• The construction and use of an econometric model
involve four broad steps.
 Specification: This refers to the expression of
economic relationship in a mathematical form.
 Estimation: This involves the determination of the
parameter values and other statistics by a suitable
method such as the least squire method.
…

 Verification: This step is concerned with

accepting or rejecting the specification as a
reasonable approximation to the truth on the
basis of the results of estimation.
 Prediction: This involves projection of the value
of the explained variable(s).
 4.2. Raw Materials and Supplies Study

• Different materials and other inputs required for

the operating of the project should be identified
and their availability, supply and method of
estimating operating costs should be analyzed.