This presentation covers the topic of project identification and project selection. It sheds light on the meaning of the project, meaning of project identification, classification of projects, types of opportunities, dimensions of project identification, criteria for project selection and constraints involved in project selection. Enjoy learning!
2. MEANING OF A PROJECT
oA project is an envisioned workplan devised by the entrepreneur or
the top level management for the start or initiation of a new business
venture.
oThe project typically consists of a specified set of objectives to be
achieved within a specified period of time.
oIt contains all the details about the project/venture including its
expected outcomes and anticipated profits. It is the job of every
entrepreneur to find such promising project ideas.
oThe identification of opportunities for project investments requires
an understanding of the environment in which one operates,
sensitivity to emerging investment possibilities, imaginative analysis
of tangible and intangible factors and also an element of luck.
3. MEANING OF PROJECT
IDENTIFICATION
o Project identification is the first step of a new venture. It is therefore
very crucial to entrepreneurs to identify projects.
oAn entrepreneur has an infinitely wide choice with respect to this
project. The important dimensions of choice are: product/service,
market, technology, equipment, scale of production, location,
incentives, and time phasing.
oThe task of identifying a feasible and promising project is somewhat
difficult. Moreover, it is interrelated with the government policies,
infrastructural development and skills of the people.
oProject identification is concerned with collection, compilation, and
analysis of economic data for the eventual purpose of locating
possible opportunities for investment and with the development of
such opportunities.
4. TYPES OF OPPORTUNITIES:
oOpportunities according to Drucker are of three kinds which are as
follows:
oAdditive opportunity
oComplementary opportunity
oBreakthrough opportunity
oThis is explained as under:
oAdditive opportunities are those opportunities which enable the decision-maker to
better utilise the existing resources without in any way involving a change in the
character of the business. These opportunities involve minimum disturbance to the
existing state of affairs and hence the least amount of risk.
oComplementary opportunities involve the introduction of new ideas and as such do
lead to certain amount of change in the existing structure, hence there is a
considerable amount of risk.
oBreakthrough opportunities involve fundamental changes in both the structure and
character of the business. The element of risk in these opportunities are the
5. OBJECTIVES OF A PROJECT
oThe various objectives for the start of a particular project can be
stated as under:
oTo increase profit
oTo reduce losses
oTo become more competitive
oTo provide help after disaster
oTo train people in a new area
oTo create employment
oTo introduce innovation in the market
oTo improve the rural and backward areas
oTo reduce the level of imports
oTo encourage export oriented production in the country
oTo improve the standard of living of the people.
oTo alleviate poverty and improve welfare measures
6. CLASSIFICATION OF PROJECTS
oProjects can be classified in a number of ways depending upon the
nature, type, magnitude of resources and the cause of the project.
Some of the popular classifications of projects include:
oQuantifiable and non-quantifiable projects
oSectoral projects
oTechno-economic analysis
oFinancial Institutions
oThis is explained as under:
oQuantifiable and non-quantifiable projects: The projects in which a quantitative
analysis of costs, resources involved, level of investment deployed and benefits
derived from the project can be undertaken are called as quantifiable projects.
Projects for which such a quantifiable analysis of costs and benefits cannot be
performed are called as non-quantifiable projects.
7. oSectoral projects: Sectoral projects are those projects that can be classified on the
basis of the sector that it belongs to, such as follows:
o Agricultural & Allied
o Mining & Quarrying
o Industrial units
o Food, gas, water
o Electricity, power, petroleum
o Transport, trade and commerce
o Education and health
oTechno-economic analysis: Under this category, the projects can be classified into
three types:
o Demand based and raw material based: These are projects which are undertaken either on the basis of
market demand or because of the excess availability of the raw materials.
o Capital intensive & Labour intensive: These are projects undertaken on the basis of the type of inputs
used, whether it is capital oriented or labour oriented.
o Magnitude: On the basis of magnitude the projects can be classified as small scale, medium scale and
large scale enterprises.
oFinancial Institutions: On the basis projects are classified as follows:
o New projects
o Replacement projects
o Diversification projects
o Modernization projects
8. DIMENSIONS OF PROJECT
IDENTIFICATION
oAny project when going through the screening process is analysed in
terms of its efficiency with respect to three dimensions, namely:
oInput analysis
oOutput analysis
oCost & Benefit analysis
oLet us look into each dimension in detail:
oInput Analysis:
The input analysis is mainly concerned with the internal factors associated with the
project. These are more or less regarding the costs associated with venturing into a
new economic and creative opportunity. The following factors are analysed and
evaluated under input analysis:
oAvailability of sufficient factors of production.
oAvailability of sufficient amount of capital.
9. oAvailability of both skilled and unskilled labour.
oAbility to raise capital for the purpose of investment.
oNature and type of location for the venture.
oType and selection of the product or service.
oNature and size of the risk involved in the project.
oThe level of experience and expertise in the particular field/ industry under
consideration.
oThe amount of funds that can be invested into the project.
oEstimating all the hidden costs and expenditures involved in the project.
Thus the input analysis puts it into perspective how much a particular project
consumes in terms of implementation costs and the amount of risk involved in the
venture at different stages of the venture.
oOutput Analysis:
The next component is the output analysis, this analysis revolves around the
aftermath of the project implementation. Here the emphasis shifts from to “How to
execute a project ?” to “What can be expected from the implementation of the project
?”. This output analysis is a more result-oriented analysis as it considers the
estimation of output, expectation of profits to the firms and the returns to
shareholders. The following factors are considered in the output analysis:
oThe expected profits that can be generated from the project and the returns that
can be earned by the investors.
oThe reception of the product/service by the society and expected demand for the
commodity.
10. oA detailed analysis of market trends, the targeted segments of the population for
who the product is made, is considered under output analysis.
oAvailability of sufficient distribution channels and warehousing facilities of safe and
clean storage of output.
oMinimizing the loss incurred by the firm by optimizing the production of output.
oDetermination of the break-even point of production and sales of the output.
oComping up with an accurate pricing mechanism for the product/service.
oSetting up of feedback mechanisms to guarantee continuous customer satisfaction.
oAdding more value to the product at factor prices.
oSafeguarding the employees from low morale and upgrading technology to
maintain sales.
Thus the output analysis puts into perspective how much a particular project can
give back to the entrepreneur and to the team involved in its production.
oCost and benefit analysis:
The last component of project identification is the cost and benefit analysis. This
analysis aims at ascertaining a relationship between the costs incurred and benefits
derived from venturing into a particular project opportunity. Here a close look is
taken into how much costs were involved and what were the benefits derived from it
and also how close is this estimate to the predefined budget estimate of the
entrepreneur or the firm. The more proximate the two are, it shows successful
management and financial prudence by the firm as the firm was able to optimize
production, minimize loss and generate substantial profits. Thus, cost-benefit
analysis is a close look at the performance of the firm.
11. IMPORTANCE OF PROJECT
IDENTIFICATION
oThe importance of project identification is highlighted in the
following points:
oThey become catalytic agents of economic development.
oThey boost production and generate employment.
oThe commitments to a project are non-reversible.
oThe project consists of benefits that are of a long term nature.
oA project causes substantial financial outlays.
oProject identification causes the necessary changes in society overtime.
oProject identification is the most crucial step of the project planning cycle and
employs a significant amount of resources as part of its exercise.
oProjects provide the framework of the future pattern of activities and services of the
enterprises.
oThey also initiate development of basic infrastructure and environment.
oProjects accelerate the process of socio-cultural development.
12. SWOT ANALYSIS
oSWOT Analysis is a logical, analytical, research tool used by entrepreneurs or
the top level management to analyse the feasibility of a particular project. It
consists of four components:
oStrengths
oWeaknesses
oOpportunities
oThreats
oThis can be explained as under:
oStrengths: Characteristics of a business which give it advantages over its competitors.
oWeaknesses: Characteristics of a business which make it disadvantageous relative to its
competitors.
oOpportunities: Elements in a company’s external environment that allow it to formulate
and implement strategies to increase profitability.
oThreats: Elements in the external environment that could endanger the integrity and
profitability of the business.
13. PROJECT SELECTION
oProject selection is the process of selecting a promising project idea
from a list of various project ideas based on certain conditions that
are set by the entrepreneur or the firm.
oProject selection is the second step after project identification in the
project planning cycle.
oAfter gathering a large number of project profiles, the entrepreneur
should consider the following criteria for selecting a particular
project:
oInvestment size
oLocation
oTechnology
oEquipment
oMarketing
14. oInvestment size:
Professional managers, who have worked in multinational companies or large Indian
companies, should think of starting medium-sized or large-sized units only. The
investment size should be Rs. 3 to 5 crore. They should not commit the common mistake
of restricting the project size to less than Rs. 2 crores, so that they have to go to all the
financial institutions. In fact, under the present circumstances, it will be much easier to
get projects cleared by the all-India institutions, requiring even lesser promoter’s
contribution.
oLocation:
A new entrepreneur should locate his project to the extent possible, in and around the
state headquarters. There are many backward areas around such cities. It is necessary to
have such a location so to attract competent managers. This will also facilitate liaison with
the State Electricity Board, State Industrial Development Corporation and various other
agencies.
oTechnology:
The first project should not be for a product which required high technology,
necessitating foreign technical collaboration. It is better to go in for a product with a
proven technology that is indigenously available. It makes life easier to begin with.
oEquipment:
The entrepreneur should select the best equipment as per advice of experienced technical
consultants. He should not compromise on the quality of the equipment. Many
entrepreneurs enter into some sort of a deal with the equipment manufacturers for a
“kick-back” and in the process sacrifice quality. One should not be short-sighted and
come to grief by going in for poor quality equipment.
oMarketing:
It is not advisable to get into a project particularly the first, which would mean survival
15. CONSTRAINTS INVOLVED IN
PROJECT SELECTION
oThe various constraints faced by the entrepreneur during project
selection, can be divided into 2 components:
oExternal constraints
oInternal constraints
oExternal constraints:
oThese include all the factors outside the project such as the social taboos, social
structures, government policies, the market conditions, the industrial receptivity
and so on.
oIt depends upon the competitor’s strategy and the degree of competition and stress
faced by the industrial units in a free and perfectly competitive market
environment.
oIt depends upon the economic conditions prevailing in the market. Whether the
economy is in boom or depression what are the hopes and optimism of the
producers and consumers.
oIt depends on the political climate of the country whether the country is in a
politically unstable condition, is it in a war or experiencing a revolution, etc.
16. oInternal constraints:
oThese refers to the availability of the factors of production such as land, labour,
and capital.
oThe problems associated with the nature and type of the industry and the particular
product or service.
oThe mindset of the management, whether it is a competitive or a conservative
management.
oThe required location and the cost of social overheads.
oThe ability to raise funds for the project and availability of funds to invest as seed
capital.
Conclusion:
It can thus be said that project identification is an important dimension of
entrepreneurship. Also, more important is its classification which goes towards the
emergence of three dimensions- inputs, outputs and social costs and benefits and
finally the economic development of the country.
