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- 1. Project Analysis 9/9/2022 ASSOSA UNIVERSITY SCHOOL OF POST GRADUATE STUDIES DEPARTMENT OF MANAGEMENT MASTER OF BUSINESS ADMINISTRATION WEEK END PROGRAM UNIT - III PROJECT IDENTIFICATION 3.1 Pre – Identification “Pre – Identification” is an important prelude to project identification. This pre – identifications stage involves surveying, reviewing, inventorying and analysis of strategies and policies, natural resources data and socio – economic information. It is a very important phase in project planning. Unfortunately, it is an aspect of planning, which is either, almost totally ignored or for which inadequate resources are provided in most developing countries. There are a number of reasons: First, and perhaps most important of all, is sheer ignorance – an ignorance of need and ignorance of cost – effective ways of carrying the research, surveys, inventorying of resources and integrating and analyzing the information. Second, such work tends to be regarded as an expensive overhead cost and therefore expendable in difficult times of budgetary. Third, a lot of the work has tended to be time consuming, people cannot wait for results and do not consider it important to even start it. Nowadays, modern technology is revolutionizing the survey methods and the means for carrying out synthesis and analysis, speeding up some processes, reducing the costs of others and providing new ways of looking at things. A good data being a prerequisite to sound project formulation and the analysis of data identifying gaps and throwing up ideas for possible projects, project identification must be carried out also within a frame – work of national, regional and sectoral development (including pricing, taxation and subsidy) policies otherwise much time and effort might be wasted in identifying and preparing projects which would be reflected on policy grounds or which might turn out to be unfeasible because of, for example, a tax and subsidy policy. Thus, those who are responsible for identifying projects need to be aware of accepted strategies and policies and also be in a position to feed back information to those who are responsible for formulating policies. 3.2 Project Identification The search for promising project ideas is the first step towards establishing a successful venture. The key to success lies in getting into the right business at the right time. The objective is to identify investment opportunities, which are prima facie feasible and promising and which merit further examination and appraisal. Project identification consists in finding projects, which could contribute towards achieving specified development objectives. In principle, project identification should be an integral part of the macro – planning exercise, with sectoral information and strategies as the main source of project ideas. In practice, however, projects do not always derive from national and sectoral plans. Instead, they may originate from several sources. Irrespective of their origin, project ideas should, in general, aim at overcoming constraints on the national development effort, be they
- 2. Project Analysis 9/9/2022 2 material, human or institutional constraints, or at meeting unsatisfied needs, and demand for goods and services. Constraints, needs and demand should be interpreted broadly to include, for example, foreign exchange constraints that might indicate the need to undertake projects for export promotion or import substitution. The variety of projects makes it impossible to prepare an exhaustive list of sources from where project ideas emanate; much depend on the experience and imaginative of those entrusted with the task of initiating development project. In general, one can distinguish two levels where project ideas are born: The macro – level and the micro – level. At the macro – level, project ideas emerge from: 1. National policies, strategies and priorities as may be enunciated by government from time to time; 2. National, sectoral, sub – sectoral or regional plans and strategies supplemented by special studies, sometimes called opportunity studies, conducted with the explicit aimof translation national and sectoral, sub– sectoral and regional programs into specific projects; 3. General surveys, resource potential surveys, regional studies, master plan and statistical publications, which indicate directly or indirectly investment opportunities. 4. Constraints on the development process due to shortage of essential infrastructure facilities, problems in the balance of payments, etc. 5. Government decision to correct social and regional inequalities or to satisfy basic needs of the people through development projects. 6. A possible external threat that necessitates projects aiming at achieving, for example, self – sufficiency in basic material, energy, transportation, etc. 7. Unusual events such as droughts, floods, earth – quakes, hostilities, etc., 8. Government decisions to create project-implementing capacity in such areas as construction, etc. 9. At the macro – level, project ideas can also originate from multilateral or bilateral development agencies and as a result of regional or international agreements in which the country participate. 10. In addition, individual inspiration, institutions, workshops, and development experiences of other countries may point to some interesting project ideas. At the micro – level, the variety of sources is equally broad. Project ideas emanate from: 1. The identification of unsatisfied demand or needs. 2. The existence of unused or underutilized natural or human resources and the perception of opportunities for their efficient use. 3. The need to remove shortages in essential materials, services or facilities that constrain development efforts; 4. The initiative of private or public enterprises in response to incentives provided by the government; 5. The necessity to complement or expand investments previously undertaken. 6. The desire of local groups or organization to enhance their economic status and improve their welfare. 7. Analyze the performance of existing industries 8. Examine the inputs and outputs of various industries 9. Review imports and exports 10. Look at the suggestions of financial institutions and development agencies 11. Investigate local materials and resources 12. Analyze Economic and Social Trends 13. Study new Technological Development 14. Draw clues from consumption abroad
- 3. Project Analysis 9/9/2022 3 15. Explore the possibility of reviving sick units 16. Attend Trade fairs 17. Project proposals could also originate from foreign firms either in response to government investment incentives or because they consider production within the country a better way to secure a substantial share of the domestic market for their products. 3.3 Screening potentially promising ideas Once a list of project ideas has been put forward, the first step is to select one or more of them as potentially promising. 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, that becomes specific and refined as project planning advances. During the preliminary screening to eliminate ideas, which prima facie are not promising, it is required to look into the aspects such as: Compatibility with the promoter Consistency with government priorities Availability of inputs Adequacy of market Reasonableness of costs Acceptability of risk level 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 over – ambitious sales and profitability. Obviously, since the criteria tend to be somewhat nebulous, much depends on the experience and sense of objectivity of the professionals applying them. It is, however, 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. Indeed, project planning can be viewed as a process of elimination, i.e. elimination of interior alternatives. As a result of the preliminary screening exercise, a project profile, an opportunity study report, or an identification study report, as appropriate, is prepared showing which project alternatives should be rejected and which ones may be advanced to the next stage.