Chapter Three :

Project Identification
and Selection

Instructor: Abebe
Shanko (PhD
candidate)Project Mgmt Chapter 3 1
 Contents
• Conceptual Clarification
• Sources of project ideas
• Approaches of project identification
• Techniques used in Project Identification and
Selection
Situation analysis

Stakeholders analysis

SWOT analysis

Problem analysis

Objective analysis

Alternative Tree Analysis or Project

Selection
Group Exercise
Project Mgmt Chapter 3 2
 Chapter objectives:
After studying this chapter, you
should be able to:
Explain project identification
Distinguish sources of project ideas
Differentiate methods of project
identification
Understand project selection
criteria
Project Mgmt Chapter 3 3
 3.1. Project Identification-
meaning
 It involves the conceiving of ideas or
intentions to set up a project. These ideas
are then transformed into a project.
 It is the first and, perhaps, the most crucial
stage of project life cycles.
 It is from this idea that the project will be
based, and a poor idea or lack of ideas is
likely to lead to poor or no projects.
 It is at this stage that an initial screening
of project ideas will take place, with some
project ideas being abandoned as
impractical or of a low priority.
Project Mgmt Chapter 3 4
Project ideas are normally initiated by a
perceived need [PROBLEM or OPPORTUNITY]
in an organization and converted in to a formal
project proposal.
Projects are identified where there is a demand
for the output of the project and where it is
believed that the resources can be made
available to satisfy the demand.
A distinction is some times made between
demand-based projects ,resource-based
projects and need based projects.
Generally, when projects are not undertaken for
commercial objectives, the project may be need-
based. Project Mgmt Chapter 3 5
Need-based: A need-based project is
designed to address specific needs or problems
within a community, organization, or environment.
 These projects typically arise from identified gaps
or challenges, such as social issues, economic
disparities, or environmental concerns. The focus
is on developing solutions that directly respond to
the needs of the target population.
 Eg. Need based projects are most common in the social sectors
where requirements for health and education facilities or
support facilities for unemployed workers are related to an
assessment of need.
Normally the distinction between demand and need is based on
whether or not the output of a particular activity is sold
on a commercial basis.
Project Mgmt Chapter 3 6
A demand-based: project is focused on meeting
the specific demands or requirements of a
market or target audience. Unlike need-based
projects, which prioritize addressing underlying
issues, demand-based projects aim to fulfill existing
market demand for products, services, or solutions.
Demand for project output may be reflected in terms
of:
 Local consumer demand for the product (goods or
services)
 Export opportunities
 Demand for intermediate inputs into other
sectors/activities
 Eg. For example, a company may launch a new
product line based on consumer demand identified
through market research.
Project Mgmt Chapter 3 7
Resource-based: A resource-based project
focuses on utilizing specific resources such as materials,
labor, or technology to achieve particular goals or
outcomes.
Resource based identification is often important
for the development of agro-industries.
Many agro-industrial projects are identified
because of existing production of agricultural
raw materials or the availability of land that is
suitable for their production.
Surveys of land capability may lead to the
identification of potential new areas of economic
activity. Eg. Sugar factory, Cement factory.

Project Mgmt Chapter 3 8

 3.2 Sources of Project Ideas
How to come up with a project before grasping to
project preparation?
Usually there are two major levels where project ideas
are originated- the macro and micro level
At the MACRO LEVEL, project ideas emerge from:
National policies, strategies and priorities
National or Sectoral or regional opportunity
studies, conducted with the aim of translating
programs into specific projects;
 Multilateral or bilateral agreements on which the
country participates;
Surveys, studies, publications which indicate investment
opportunities;
Constraints on the development process due to
shortage of essential infrastructure facilities, etc.;
Project Mgmt Chapter 3 9
Micro Source of Project
Ideas: Project ideas may emerge from:
Existence of unused or under utilized
natural and human resources and the
perception of opportunities for their efficient
use.
Initiative of private or public enterprises
in response to incentives provided by the
government.
 Necessity to complement or expand
investments previously undertaken.
 Desire of local groups or organizations to
enhance and improve their welfare.
Project Mgmt Chapter 3 10
During identification, the analyst
should eliminate project proposals
that:
Are technically unsound and risky
 Have no market for the out put
 Have inadequate supply of inputs
 Are very costly in relation to
benefits
 Assume over ambitious sales
and profitability, etc.
Project Mgmt Chapter 3 11
As a result, some of the project alternatives
will be rejected and those that are
promising will be advanced to the
next stage called project preparation.
In general, by the end of the identification stage,
mainly, we should know:
 Whether further detailed work is justified?
 What major issues have been identified?
What project alternatives have been considered?
Which of them have been rejected? Etc.
Rough estimate of costs for projects that
still look promising, a specific work plan for the
next stage should also be included in the study.
Project Mgmt Chapter 3 12
 Generally, Sources of
project ideas include:
 The community, researchers, experts, local
leaders, Policy makers, entrepreneurs,
donors, NGOs, Planners, etc.
Government policy priorities, external
threats, unsatisfied demands, under utilized
natural resources, etc.
Needs of clients
Individual working in organizations, well
informed technical specialists
Local leaders
 Government departments,
 Other country's experiences
Project Mgmt Chapter 3 13
 Who identifies projects?
Various organizations, whether
local or foreign, state owned or
private, government ministries,
development banks, interest
groups,NGOs and of course
individuals can identify
projects.

Project Mgmt Chapter 3 14

3.3 Approaches to
project identification
 There are two major
approaches to project
identification :
(a) Top-down approach
(b) Bottom-up approach

Project Mgmt Chapter 3 15

 Approach
Projects are identified based on demands
from beyond the community.
This may include directives from:
 international conventions (such as
Kyoto Protocol/climate change)
 international institutions that have
determined particular priorities and
thus projects
 national policy makers identifying
projects that pertain to party
manifestos and/or national plans.

Project Mgmt Chapter 3 16

 Advantages of Top-Down
Approach
It may be a rapid response to
disasters like floods, war outbreak
because there is limited time and
chance to consult the beneficiaries.
It can be effective in providing
important services like education,
health, water, roads etc.
It can contribute to wider national
or international objectives and
goals.

Project Mgmt Chapter 3 17

 Limitations of Top-Down
Approach
Does not help in modifying strongly
established ideas and beliefs of
people.
Assumes external individuals know
better than the beneficiaries of the
service.
Communities have little say in
planning process rendering approach
devoid of human resource
development.
Community develops dependency
syndrome on outside assistance and
does not exploit their own potential.
Project Mgmt Chapter 3 18
Bottom-Up Approach
In this approach
community/ beneficiaries
are encouraged to
identify and plan the
projects themselves with
or without outsiders.

Project Mgmt Chapter 3 19

 Advantages of Bottom-Up Approach
Interveners accomplish more with limited
resources since people tend to safeguard
what they have provided for themselves.
Develops people’s capacity to identify
problems and needs and to seek possible
solutions to them.
Provides opportunities of educating
people.
Helps people to work as a team and
develop a “WE” attitude - makes project
progressive and sustainable.
Resources are effectively managed;
dependence reduces, there is increased
equity, initiative, accountability.
Project Mgmt Chapter 3 20
 Limitations of Bottom-Up Approach
Not always effective for projects that
require urgency to implement.
Time-consuming and requires
patience and tolerance.
People sometimes dislike approach
because they do not want to take
responsibility for action.
The priorities of communities may
not fit with national or
international priorities that seek
to have a broader impact.
Project Mgmt Chapter 3 21
3.4 Techniques used in Project
identification and initial
screening:
Situation analysis
Stakeholders analysis

SWOT analysis

Problem analysis

Objective analysis

Alternative Tree Analysis or project

selection
Project Mgmt Chapter 3 23
 a) Situation analysis
This is about describing the problem or
situation to be addressed by the project.
 This can be ‘problem based’ or ‘opportunity
based’.
 For example, is there an opportunity to serve
people with disability? Like Partnering with local
businesses to create job training programs
specifically designed for individuals with
disabilities, helping them gain valuable work
experience and skills.
 Or is there an opportunity to establish a Cement
Factory (suitable soil)
Project Mgmt Chapter 3 24
B. Stakeholder
Analysis
 Stakeholder is any individual, group or
organization, community, with an interest
in the outcome of a programme/project.

Key Question
 Whose problems or opportunities
are we analyzing? Who will benefit
or loose-out, and how from a
potential project intervention?
Project Mgmt Chapter 3 25
Stakeholder Analysis _
Cont’d
Purpose: To identify:
 Needs and interest of stakeholders
 Organizations and groups that
should be encouraged to
participate in different stages of
the project
 Potential risks that could put at
risk a project
 Opportunities in implementing a
project
Project Mgmt Chapter 3 26
C. SWOT Analysis-Cont’d
 SWOT analysis is a tool for institutional
appraisal and a brainstorming
exercise in which the representatives of
the organization participate fully.

Strengths
SWOT stands Weaknesses
for:
Opportunities
Threats
Project Mgmt Chapter 3 27
 SWOT Analysis _Cont’d
 Strengths - the positive internal
attributes of the organisation
 Weaknesses - the negative internal
attributes of the organisation
 Opportunities - external factors which
could improve the organisation’s
prospects
 Threats - external factors which could
undermine the organisation’s prospects
Project Mgmt Chapter 3 28
Project Mgmt Chapter 3 29
 D. Problem Analysis
 Problems Analysis visually represents the causes
and effects of existing problems in the project
area, in the form of a Problem Tree.
 It clarifies the relationships among the identified
problems.

Project Mgmt Chapter 3 30

 Example of problem tree analysis for employee
motivation at work
1st identify the cause and problems that de-motivate
3employees
rd
Simply connect causes and effects by
2 nd
combine
directly them based on their similarity
“Because”
EFFECT I am not motivated to
work
I am not sure My salary is low I get poor
what to do in respect from
this work the boss
I am lack of My My post My poor We have
expertise/skill compan is not commun different
s y is not high yet ication ways to
getting to boss think
I am lack of
profit
training
CAUSE Project Mgmt Chapter 3 31
Steps in Undertaking
Problem Tree
1. Identify problems that the project will
address & state problems in negative
manner.
2. Group problems by similarity of concerns.
3. Develop the problem tree:
a) Select a Core/Focal problem from the list
and relate other problems to the
core/focal problem.
b) If the problem is a cause of the core
problem the tree is placed below the
core problem.
c) If the problem is an effect of the core
problem Project
is goes
Mgmt Chapterabove.
3 32
Example of Problem tree Analysis for farm productivity

Project Mgmt Chapter 3 33

 E. Objective
Analysis
 Objective Analysis clarifies the
means-ends relationship between the
desirable situation that would be
attained and the solution for attaining
it.
 This stage also requires an Objective
Tree.
This involves turning a problem
tree into an objectives tree
Project Mgmt Chapter 3 34
 How to Make the Objective Tree
Step 1: Reformulate all negative situation of the
problem tree into positive situations that are :
 Desirable
 Realistically achievable
Step 2: Make sure that there is a means – ends (results)
relationship (if this is implemented then this will be achieved)
 The causes become the starting point for the objectives.
 The effects become the results of the objectives.
Step 3: IF necessary:
 Revise statements
 Add new objectives if these seem to be relevant and
necessary to achieve the objective at the next higher
level
• Delete objectives which do not see suitable or
necessary
Project Mgmt Chapter 3 35
Objective Analysis-Cont’d
Reformulating of Problems?
Results
I enjoy
I am
working
not motivated
and am so
to work
motivated

Knowsure
Not whatwhat
to doto Salary
Salaryisisincreased
low Respected andfrom
Poor respect
well
do in this work encouraged
the boss by boss

Adequate
Lack of My
My Get
Not high Better
Poor Understandi
Different
skills/expertise
expertise/skills company
company promoted
post yet communic
communi ng of to
ways
is ation to his/her
is getting
not cation to think
profits boss perspective
Get
getting boss
Lacktrained
of training
profit

Means
Project Mgmt Chapter 3 36
 Project Selection _Cont’d
• Example of the Problem Tree ( case of bus traffic
accidents) to the Objective Tree

Incidence of bus
accidents is high
Drivers do Many technical Road
not follow problems of condition is
rules too bad
buses
Drivers are Many Bus is maintained poorly
not trained old
buses Regula Mecha Insuffici
New r tech. nics ent
equipm
buses is not tech. is ent at
has not done inadeq worksho
been uate p
Project Mgmt Chapter 3 37
 Project Selection-Cont’d
Example of the Objective Tree ( case of bus traffic accidents)
How could we divide?

Road
Incidence of bus accidents Improvement
is lowered Approach
Driver Fewer Better
follows technical road
rules troubles infrastruc
Bus drivers Fewer ture
Bus is maintained
trained old adequately
buses Regula Mechani Sufficien
Driver New r tech. cs tech.t
Training is equipm
Approach
buses check improve ent
purchas done Bus
d provide
ed Maintenance
d
Project Mgmt Chapter 3
Approach 38
3.5 Project Selection/
Analysis of alternatives.
 Project Selection is a process in
which specific project strategies are
selected from among the objectives
and means raised in objectives
analysis, based upon selection
criteria.

Project Mgmt Chapter 3 39

How to select the project
1.Divide the objective tree into
different clusters of objectives
2.Name all clusters
3.Remove impossible one to
achieve
4.Set criteria to make the final
selection
Needs, Priority,
Environment, Difficulty,
Project Mgmt Chapter 3 40
Examples of Criteria for Ranking Projects
Extent:-
Number of people affected by the project
Geographic area affected by the project
Economic and Financial :-
Potential economic benefits to the country or region
Potential financial benefits to farmers and local communities
Environmental :-
 Conservation of natural resources and more sustainable land
use
Protection of natural resources (e.g., forests)
Social:-
Poverty alleviation
Assistance to disadvantaged groups
Policy:-
Is the project in line with national policies?
Resources :-
 Availability of human resources to implement project
Likely availability of funding from government, NGO and/or donor
Project Mgmt Chapter 3 41
Analysis of alternatives.
At this stage, there is a need to assess
the alternative courses of action
proposed by each objective tree in terms
of effectiveness, costs, feasibility, impact
on priority groups, risks or other criteria.
Criteria can be:
 Technical
 Financial
 Economic
 Institutional
 Social/distributional
 Environmental

Project Mgmt Chapter 3 42

 Preliminary screening
Once some project ideas have been put forward,
the next step will be to select one or more of
them as a potentially viable.
This requires a quick preliminary screening by
experienced professionals.
 At this stage, the screening criteria are vague
and rough
During this stage, the analysts should eliminate
project proposals that are:
 Technically unsound & risky
 Projects that have no market for their outputs
 Have inadequate supply of inputs
 Very costly in relation to benefits
 Assume over ambitious sales and profitability
Project Mgmt Chapter 3 43
Project Rating Index (PRI)
More specifically, when large numbers of
project ideas are generated, we need
preliminary screening to judge whether the
project is primarily worthwhile or not.
The PRI rationalizes the process of
preliminary screening as shown in the next
table. The steps are identified by (Meredith
and Mantel, 2006):
i. Identify factors relevant for project rating.
ii. Assign weights to the factors (the weights
are supposed to reflect their relative
importance).
Project Mgmt Chapter 3 44
iii. Use suitable rating scale (say, a five or
seven point scale).
iv. Rate the project proposal on various factors.
v. Multiply each factor rating with factor
weight. This gives score for the factor.
vi. Add factor scores. This gives an overall
project-rating index.
vii. Compare the overall project-rating index
(step no.6) against the predetermined hurdle
value (cut-off point).
viii. If equal or more accept or else reject the
projec
Project Mgmt Chapter 3 45
Table follows construction of Preliminary Rating
Index (PRI)

Project Mgmt Chapter 3 46

 New project ideas

Screen Apprai
ing sal

Selecti
on

Time
Project Mgmt Chapter 3 47
Project Mgmt Chapter 3 48
…for your active
participation !!
Project Mgmt Chapter 3 49