This document discusses the key steps in generating and screening project ideas, including generating ideas through monitoring the environment, conducting a corporate appraisal, identifying investment opportunities using tools like Porter's five forces model and the product life cycle approach. It also covers scouting for project ideas, preliminary screening using a project rating index, and sources of positive net present value like economies of scale.
This document discusses the key steps in generating and screening project ideas, including generating ideas through monitoring the environment, conducting a corporate appraisal, identifying investment opportunities using tools like Porter's five forces model and the product life cycle approach. It also covers scouting for project ideas, preliminary screening using a project rating index, and sources of positive net present value like economies of scale.
This document discusses the key steps in generating and screening project ideas, including generating ideas through monitoring the environment, conducting a corporate appraisal, identifying investment opportunities using tools like Porter's five forces model and the product life cycle approach. It also covers scouting for project ideas, preliminary screening using a project rating index, and sources of positive net present value like economies of scale.
This document discusses the key steps in generating and screening project ideas, including generating ideas through monitoring the environment, conducting a corporate appraisal, identifying investment opportunities using tools like Porter's five forces model and the product life cycle approach. It also covers scouting for project ideas, preliminary screening using a project rating index, and sources of positive net present value like economies of scale.
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GENERATION &
SCREENING OF PROJECT IDEAS CONTENTS • What Is Project Management • 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 WHAT IS PROJECT MANAGEMENT ? Project management is the practice of initiating, planning, executing, controlling, and closing the work of a team to achieve specific goals and meet specific success criteria at the specified time. TASKS INVOLVED GENERATION OF IDEA IN GENERATION AND SCREENING MONITORING OF ENVIRONMENT OF A PROJECT IDEA CORPORATE APPRAISAL
TOOLS FOR IDENTFYING INVESTMENT
OPPORTUNITIES
SCOUTING FOR PROJECT IDEAS
PRELIMINARY SCREENING
PROJECT RATING INDEX
SOURCES OF POSITVE NPV
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 Setting up operational objectives like cost reduction, productivity improvement, increase in capacity utilization, improvement in contribution margin (c) Creating Good environment atmosphere motivates employees to be more creative and encourages techniques like brainstorming, group discussion 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(acceptance) 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(unity) 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 that are to be considered (a) Market and Distribution – 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. Location advantage iv.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(active) 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(competition) 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. • Acceptability of risk level – The desirability of the project also depends upon risks involved in executing it. 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 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
