CHAPTER THREE

PROJECT IDENTIFICATION

MITKU A.

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 Introduction
• Identifying suitable project ideas is the most important step in the
whole process of project preparation.
• 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 in the right
time.
• The objective is to identify investment opportunities which are feasible
and promising.
• Generation of an idea of producing a new product, new business,
requires imagination and sensitivity to environmental changes and the
realistic assessment of what the firm can do?
• An idea regarding a required intervention in a specific area to address
identified problem is formed and developed.

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 Cont’d
• This idea is usually hatched through discussions by specialists and
local leaders in a community need based on issues and turned into a
proposal.
• Generally project ideas are generated depending on: Consumer
needs, Market demand, Resource availability, Technology, Natural
calamity, SWOT analysis, Political considerations etc.,
• The project idea selection is selection of project idea from
available alternatives is to be best suited to the entrepreneurs’
capacity, competence and willingness.
• People would like to select a project which requires a minimum
investment, low degree of competence, completed in the
shortest time, and which has the highest return potential.

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 PROJECT IDENTIFICATION
 Project identification is the process of
searching for and subsequently finding
potential projects.
– Success of a venture depends on:
Identifying - investment opportunities
Searching - promising project ideas
getting -into the right business at the right time.

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 CONT’D
Chandra (2005:43) also writes that the task of
identification is:
– partly structured, partly unstructured;
– partly convergent thinking, partly divergent thinking;
– partly requiring objective analysis of quantifiable
factors, partly requiring subjective evaluation of
qualitative factors;
– partly amenable to control, partly dependent on
fortuitous circumstances.
Identification is often the outcome of a
triggering process rather than an analytical
exercise.
 The notion of identification is simple.
 Yet it is difficult to develop methods or procedures for
accomplishing it as there is no well defined theory to guide
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this task.
 CONT’D
 UNIDO emphasizes the importance of opportunity studies
and puts forward that this should precede the task of
identification.
Opportunity Studies:
– Provide insights about possible/potential areas of
investments.
– Might be considered pre-identification studies.
– Involve surveying, reviewing, inventorying, and analysis of
data about natural resources, and socio-economic variables.
 So after opportunity study it is
 identifying existing gaps,
 generating useful information,
 analysis of data, and
 throwing up ideas for potentially viable projects

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 3.1. WHO IDENTIFIES PROJECTS?
– Small producers organizations/producers’ unions;
– Large scale individual private sector producers;
– Product marketing organizations;
– Private sector companies (local/multinational);
– State owned enterprises and organizations;
– Government ministries, authorities;
– Local/International Development Banks and Agencies;
– Aid agencies /self-aid associations;
– Local/State/Regional/Sub-regional Government Authorities;
– Local political and pressure groups - opposition parties;
– Local/ International NGOs;
– Credit institutions and cooperatives, etc. 7
 How Project Ideas Come About?
– Observation of existing opportunities and problems
– Opportunity studies by central government ministries;
– Sectoral/sub-sectoral programs of technical ministries (eg;
health, agriculture, tourism, education, industry, etc);
– Surveys conducted by local/ regional governments;
– Review of past projects;
– Private sector, cooperatives, and state enterprise plans;
– Investment identification by development banks/ agencies;
– Brainstorming (unsystematic discussions);
– Need analysis (existence of unsatisfied demand); and
– Need to tackle unexpected or undesirable events (drought,
earthquake, flood, etc).
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 3.2.2 MACRO AND MICRO SOURCES
 Projects are expected to contribute towards the
attainment of specified development
objectives.
 Project ideas often are not derived from
national and/or sectoral plans in practice - may
originate from several sources.
 We can distinguish two levels where project
ideas are born:
1. Macro sources

2. Micro sources
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 3.2.1. MICRO SOURCES
 Project ideas generally should aim at overcoming constraints on national
development efforts or meeting unsatisfied needs/demand.

 Prevailing constraints, needs, and demands should be interpreted

broadly to include: foreign exchange constraints that might indicate the
need to undertake projects for export promotion and/or import
substitution.

 Sectoral information and strategies often are important sources of

project ideas.

 Private and Public Enterprises; Local Groups or Organizations;

Consumer Groups and Associations; Financial Institutions/Credit
Associations; Cooperatives, Farmers’ Unions, etc; New Technology
Suppliers, and even individuals.

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 Cont’d
• A micro source of projects is not as big as macro sources but it is carried
at the levels other than the government. At micro level project ideas can
be generated from various sources. Some of these are discussed below.
1. Analysis of the performance of existing industries
2. Examination of the input-outputs of various industries
3. Review of imports and exports
4. Investigation of local materials and resources
5. Analysis of economic and social changes
6. Exploring the possibility of reviving sick units
7. Study of new technological developments
8. Identification of unfulfilled psychological needs
9. Attending trade fairs
10. Stimulating creativity for generation’s new product lines

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 Driving forces behind
– Identification of unsatisfied demand or needs;
– Existence of unused or underutilized natural or human
resources and for their efficient use;
– Need to remove shortages in essential materials,
services, or facilities that constrain development
efforts;
– Initiatives in response to incentives provided by the
government;
– Necessity to expand investments previously
undertaken;
– Desire of local groups to enhance their economic
status and improve their welfare.

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 3.2.2. MACRO SOURCES
• A macro source of project identification requires more investment of
time and cost.
• Government is the major source of project ideas in developing
countries because it has the necessary resources for undertaking
opportunity studies (conduct survey, studies, and reviews) better
access to data and information; familiar with the development
objectives, priorities, and strategies
1. Project ideas from government policies and plan
2. Project ideas from local leaders
3. Project ideas from Entrepreneurs

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Major Macro Sources:
 Federal/Central or Regional Governments
 Bilateral and Multilateral Agreements
 International Development Agencies
Government is the major source of project
ideas in developing countries. Reasons:
– Has the necessary resources for undertaking
opportunity studies;
– Better access to data and information;
– Familiar with the development objectives, priorities, and
strategies.

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CONT’D
Other Macro Sources:

– National policies, strategies, and priorities articulated by

government from time to time.

– National/sectoral/sub-sectoral plans & strategies.

– Surveys – which indicate directly or indirectly investment

opportunities.

– Constraints on the development process due to shortage of

essential infrastructure/facilities, .

– Government decisions to correct social and regional

inequalities or to satisfy basic needs of the people through
development projects.
– Unusual events such as droughts, floods, earthquake,
hostilities, etc.
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 3.3. PROCESS OF IDEA GENERATION
 Undertaking formal project identification studies
(including opportunity studies).
 Identification studies may involve
 area studies,
 industry studies,
 resource-base studies, and
 sectoral studies.

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 The process involves
 Surveying, reviewing, and analyzing existing policies,
resource endowments, and socio-economic variables

– Natural Resources: review of the natural resource

endowments of the country.

– Human Resource: review of educational standards/facility

– Socio-Economic Variables: review of various socio-

economic factors (includes: housing facilities/utilities
services/health & nutrition services/income distribution).
 Field Survey and Interview

– Survey people needs/problems.

– Asking the public their community needs

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 CONT’D
 Observing and Analyzing Prevailing Situation
– Current DD & SS;
– Examination of past and future consumption /production
trends for goods/services;
– Possibilities for improvement of goods and services (both in
terms of quality & quantity);
– Observing opportunities & threats in the invention &
introduction of new technologies, etc.
 Participating in Deliberations, Discussions, and
Trainings
– seminars, workshops, and conferences (local and/or
international) levels.
 Brainstorming
– Group of people suggesting different ideas
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(Informal).
 CONT’D
 Exposures to Publications & Media
– exposures to various print, audio-visual, and
visual media.
 Informal Discussions and Meetings
– Exchange of ideas such as in friendship/fraternal
gatherings and get-togethers

These and similar procedures might eventually lead

to the generation of various project ideas.
– Every idea may not be feasible and/or practicable.
– Some of the project ideas might be felt feasible.
– These ideas need to be ranked and/or prioritized.
(screening of potentially promising ideas).

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 3.4. TOP-DOWN AND BOTTOM-UP
APPROACHES
Top-Down Approach:
Projects are identified at:
– higher planning (or macro) level
– implemented at the decision of top officials.
– Based on the national plan and strategies.
– problem might be clearly visible
– Often have long-term orientations.
– May encounter resistance as the people in the context
might lack interest to cooperate with.

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 3.4. TOP-DOWN AND BOTTOM-UP
APPROACHES contd..
Bottom-Up Approach:
– survey of resources, key development problems, and
resources.
– Based on the realities existing in the locality.
– May focus on short-term
– Projects easy to implement
– Project’s benefits are easily visualized by the society.
– Likely to get substantial community support.
– Might help to create good will (positive images) towards
the institution/the promoter.

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 3.5. SCREENING POTENTIALLY
PROMISING IDEAS
Screening Criteria:
– Compatibility with the promoter
– Consistency with government priorities
– Availability of inputs
– Adequacy of market
– Reasonableness of costs
– Acceptability of risk level
Eliminate (screen out) project proposals that:
– Are technically unsound and risky
– Have no market for their outputs
– Have inadequate supply of inputs
– Are very costly in relation to the expected benefits
– Assume an overambitious sales and profitability target
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3.6. PROBLEMS FOR IDENTIFICATION OF
PROJECT IDEAS
Ambiguity about the National Development Goals
(Objectives)
– People might not clearly know the national
development goals.
– Development goals may not be well communicated, or
not substantially supported by other stakeholders.
Priority Issues in the Existing Development Goals
(Objectives)
– Conflict of views regarding the development priorities
and goals
– Lack of interest and commitment towards the
pursuit/realization of these goals.
– Differences regarding aspects of national priority.
– Differences in prioritizing sectoral goals.
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 CONT’D
Problems Associated with Data/Information
– Problems in data and information flow
– Constraint for accessing data
– Limited availability of data and information
– Available data may not be dependable/reliable
Conflict of Interest between Local Beneficiary
Groups
– What are the costs and benefits of the project?
– Who bear the cost? Who obtains the benefit in the
society?
– Do benefits accrue to those groups in the society who
bear the cost?
 If yes, all right!
 If no, find mechanisms to compensate those who bear
the cost

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