Project Identification steps and procedures

1. Chapter-3
Project Identification

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

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

4. The project identification process involves the following steps:-
No Yes Yes
Figure 3.1 Project Identification Process
Conduct SWOT
analysis
Develop selection
criteria data
Profile readily
available data
Scan source of ideas Screen ideas Vs
criteria
Acceptable
Further Study
•Reject
• Rework
• Later
• Reconsider
Project identification
It is the first stage of project cycle which involves the screening of
project ideas.
This is the birthplace of the project .

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

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

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

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

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

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

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

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

13. 3.3. Project Concepts and Profiles
• Once a project idea has been conceived, the next stage
is to describe the idea so that it can be prioritized and
move on to the next stage in the process.
– This may involve the preparation of a project identification
report or project concept or profile.
• It should include answers to the following questions .
• Justification and Purpose
– What goal is the project contributing to?
– What is the purpose of the project, what does it intend to
achieve?
– What problem is the project addressing?
– What is the justification of the project?
– What demands, needs or opportunities is the project
addressing?

14. • Beneficiaries and Stakeholders Best regards,
– What will benefit from the project?
– Who has a share or s take in the project?
– How have project beneficiaries and other stakeholders
participated in the identification of the project?
– Which institutions are the targets of the project?
• Resource and Institutions
– What potential resources may be available for
implementing the project?
– Which organizations are to be involved in project planning
and implementations?

15. • Policies and Plans
– How does the project proposal fit into any sector or
regional plans?
– Does the project fit into current policies?
• Impacts
– What are the likely major positive and negative social
impacts of the project?
– What are the likely positive and negative
environmental impacts of the project?
• Support
– What is the level of political and administrative
support for the project?
– Does the project have the support of beneficiaries
and/or local communities?

16. • Risks
– What are the chances of the project achieving its
objective?
– What are the main risks associated with the project?
– What assumptions have been made, e.g., what support is
needed for others?

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

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

19. Prioritization and Ranking
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 over-ambitious sales and profitability.

20. Project Rating Index
Steps in determining the project rating index:
i. Identify factors relevant for the project rating
ii.Assign weights to these factors (the weights are
supposed to reflect their relative importance)
iii.Rate the project proposal on various factors,
using a suitable rating scale. (Typically a 5-point
or a 7-point scale is used for this purpose.

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

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

23. Project Rating Index
• If firm uses 5 rating scale, determine the rating index for the project
• If policy of firm is to further study the projects whose rating index is
3.50 and above
Factor
weight
Rating Factor
Score
5 4 3 2 1
Technical know-how 0.20  0.80
Input Availability 0.15  0.45
Reasonableness of costs 0.20  1.00
Adequacy of market 0.05  0.20
Stability 0.10  0.50
Dependence of firm’s strength 0.20  0.40
Consistency with gov’t priorities 0.10  0.50
Rating index 3.85

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