Identification of Project

Introduction
• Search for promising project ideas is the first
step towards establishing a successful venture.
• As the traditional adage goes, the key to
success lies in getting into the right business
at the right time.
• Identification of such opportunities requires
imagination, sensitivity to environmental
changes, and realistic assessment of what the
firm can do.
• Identification is often the outcome of a
triggering process rather than an analytical
exercise.
• While the notion of identification is simple, it
is difficult to develop methods.
 Generation of Ideas
• Barring truly new ideas which are based on
significant technological breakthrough, most
of the project ideas involve combining existing
fields of technology or offering variants of
present products or services.
 Stimulating the Flow of Ideas
• Often firms adopt a somewhat casual and
haphazard approach to the generation of
project ideas.
• To stimulate the flow of ideas, the following
are helpful:
– SWOT Analysis
– Clear Articulation of Objectives
– Fostering a Conducive Climate
 SWOT Analysis
• SWOT analysis represents a conscious,
deliberate, and systematic effort by an
organization to identify opportunities that can
be profitably exploited by it.
• Periodic SWOT analysis facilitates the
generation of ideas.
 Clear Articulation of Objectives
• The operational objectives of a firm may be
one or more of the following :
– Cost reduction
– Productivity improvement
– Increase in capacity utilization
– Improvement in contribution margin
– Expansion into promising fields
 Fostering a Conducive Climate
• To tap the creativity of people and to harness
their entrepreneurial urges, a conducive
organizational climate has to be fostered.
• Two conspicuous examples of organizations
which have been exceptionally successful in
tapping the creativity of employees are the
Bell Telephone Laboratory and 3M
Corporation.
MONITORING THE ENVIRONMENT
• Basically a promising investment idea enables
a firm (or entrepreneur) to exploit
opportunities in the environment by drawing
on its competitive strengths.
• Hence, the firm must systematically monitor
the environment and assess its competitive
abilities.
 Business Environment
• Economic Sector
– State of the economy
– Overall rate of growth
– Growth rate of primary, secondary, and tertiary
sectors
– Cyclical fluctuations
– Linkages with the world economy
– Trade surplus/deficit
– Balance of payment situation
 Business Environment
• Government Sector
– Industrial policy
– Government programmes and projects
– Tax framework
– Subsidies, incentives , and concessions
– Import and export policies
– Financing norms
– Lending conditions of financial institutions and
commercial banks
 Business Environment
• Technological Sector
– Emergence of new technologies
– Access to technical know-how, foreign as well as
indigenous
– Receptiveness on the part of industry
 Business Environment
• Socio-demographic Sector
– Population trends
– Age shifts in population
– Income distribution
– Educational profile
– Employment of women
– Attitudes toward consumption and investment
 Business Environment
• Competition Sector
– Number of firms in the industry and the market
share of the top few (four or five)
– Degree of homogeneity and differentiation among
products
– Entry barriers
– Comparison with substitutes in terms of quality,
price, appeal, and functional performance
– Marketing policies and practices
 Business Environment
• Supplier Sector
– Availability and cost of raw materials and sub-
assemblies
– Availability and cost of energy
– Availability and cost of money
 Corporate appraisal
• A realistic appraisal of corporate strengths and
weaknesses is essential for identifying investment
opportunities which can be profitably exploited.
• The broad areas of corporate appraisal and the
important aspects to be considered under them
are as follows:
– Marketing and Distribution
– Production and Operations
– Research and Development
– Corporate Resources and Personnel
– Finance and Accounting
 TOOLS FOR IDENTIFYING
INVESTMENT OPPORTUNITIES
• There are several useful tools or frameworks
that are helpful in identifying promising
investment opportunities.
• The more popular ones are the Porter model,
life cycle approach, and experience curve.
 Porter Model: Profit Potential of
Industries

Michael Porter has argued that the profit potential of an industry depends on the
combined strength of the following five basic competitive forces:
 Life Cycle Approach
• Many industrial economists believe that most
products evolve through a life cycle which has
four stages: pioneering stage, rapid growth stage,
maturity and stabilisation stage, and decline
stage.
• Pioneering Stage During this stage, the
technology and or the product is relatively new.
Lured by promising prospects, many
entrepreneurs enter the field. As a result, there is
keen, and often chaotic, competition. Only a few
entrants may survive this stage.
 Life Cycle Approach
• Rapid Growth Stage Once the period of
chaotic developments is over, the rapid
growth stage arrives. Thanks to a relatively
orderly growth during this period, firms which
survive the intense competition of the
pioneering stage, witness significant
expansion in their sales and profits.
 Life Cycle Approach
• Maturity and Stabilisation Stage After
enjoying an above-average rate of growth
during the rapid growth, the industry enters
the maturity and stabilisation stage. During
this stage, when the industry is more or less
fully developed, its growth rate is comparable
to that of the economy as a whole.
 Life Cycle Approach
• Decline Stage With the satiation of demand,
encroachment of new products, and changes
in consumer preferences, the industry
eventually enters the decline stage, relative to
the economy as a whole. In this stage, which
may continue indefinitely, the industry may
grow slightly during prosperous periods,
stagnate during normal periods, and decline
during recessionary periods.
 The Experience Curve
• Investments aimed at reducing costs are essential
to the long-term survival and profitability of the
firm. The experience curve is a useful tool for
planning such investments.
• The experience curve shows how the cost per
unit behaves with respect to the accumulated
volume of production. The accumulated volume
of production is the total number of units
produced cumulatively from the very beginning –
it should not be confused with the annual rate of
production.
The Experience Curve

An 80% Experience Curve