UNIT TWO

IDENTIFICATION

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 An Overview of Project cycle
A project passes through a number of
life cycles called project cycle.

What is project cycle?

Project Cycle: Is the various stage through

which project proceed from inception to
implementation.
It is a stage which a project advances from
inception to maturity stage

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 Project cycle (cont…)
Some authors (Choudhury, 2005) presents the
projects life cycle in to the life cycle curve
Inception (concept, definition, organizing etc)
Maturity ( implementation ) (85%)
Decay (clean up) (3%)
Decay (Clean
Level Inception
up )
of
effort Maturity or
Implementation

Time
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 Project cycle (cont…)
A project cycle covers all the steps necessary to
bring a project to the point where its
technical,
economic and
financial feasibilities have been established and it is
ready for appraisal.
Each stage follows the proceeding one and leads
to the next.
These different phases are identified by
different institutions and authors. Some of the
phases as identified by different authors are,
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 An Overview of Project cycle
(Cont…)
The Baum Cycle (World Bank Procedures)

Baum (1970) model is the first basic model of

a project cycle which has been adopted by the
World Bank.
According to this model a project cycle
consists of the following five stages:
◦ Identification
◦ Preparation
◦ Appraisal and Selection
◦ Implementation
◦ Evaluation

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 An Overview of Project cycle
(Cont…)
The European Commission/Europe Aid Approach
This approach consists of six phases and has been
considered as the most recent approach
developed as guideline for development projects:
◦ Programming
◦ Identification
◦ Appraisal
◦ Financing
◦ Implementation
◦ Evaluation

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 An Overview of Project cycle
(Cont…)
However, in most literature and guide books the stages or phases of
projects are divided into six phases and this approach is preferred in
this discussion:
Identification
Pre-feasibility study.
Feasibility study
Selection and project design
Implementation.
Ex-post evaluation

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 Identification
Project starts by generating potential idea that can be converted
into a meaningful project.

Project identification involves finding project

idea, which could contribute towards achieving
specified business/development objectives.

In many cases, projects start as a simple idea

and later on grow up into a full-fledged
project.

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Identification (Cont …)
Identification of promising
investment opportunities
(projects) requires:
imagination,
sensitivity to environmental
changes,
And a realistic assessment of what
the firm can do.

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 Identification (Cont …)
If the project is a private project the
initiating entity will define the
◦ concept,
◦ expectation and
◦ objectives of the project.

But, if the project is a public project, scrotal

information is an important source to define
the concept, expectation and objective of the
project.
.

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Questions
1. Which one of the following is the world back procedure to classify
project phases
◦ A. Identification, Preparation, Appraisal and Selection, Implementation and Evaluation
◦ B. Identification, Pre-feasibility study, Feasibility study, Selection and project design,
Implementation and Ex-post evaluation
◦ C. Programming, Identification, Appraisal, Financing, Implementation and Evaluation
◦ D. concept, definition, organizing, implementation and clean up.

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 Identification (Cont …)
Generally, the idea for project may come from the following
sources
From the need to make profitable use of
available resources ( this is for resources based
projects)
Market based projects arise from an identified
demand in home or overseas market
Need based project may arise from the need of
community (company) to make available some
basic materials (services) requirements.

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Identification (Cont …)
Project ideas can also emanate from
government policy and plans.

technical specialists, entrepreneurs

and local leaders are also common
sources of projects.
◦ Technical specialists and entrepreneurs
can identify many areas where they feel
new investment might be profitable.

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 Identification (Cont …)
In general, the sources of project ideas can be
broadly classified into,

1. Macro-level
National policies, strategies, sectoral, sub –
sectoral or regional plans.
General surveys,
◦ resource potential surveys,
◦ regional studies,
◦ master plan and
◦ statistical publications indicate directly or
indirectly investment opportunities.

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 Pre feasibility study
After we have identified project ideas the next step is
project preparation and analysis.

Project preparation includes both Pre-feasibility and

Feasibility studies

Once a project idea is identified a preliminary project

analysis will be done ( i.e., pre-feasibility study).

Which means the project idea must be elaborated in sort

of study.

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 Pre feasibility study (Cont…)
Why pre-feasibility study?

Because, undertaking a feasibility study that

enables a definite decision to be made on the
project is a costly and time – consuming task.
Therefore, before assigning larger funds for
such a study, preliminary assessment of the
project idea might be made in a pre-feasibility
study.
In the pre-feasibility study stage, the analyst
obtains rough estimation of the major
components of the project’s costs and
benefits.

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 Pre feasibility study (Cont…)
Some of the main components examined during the
pre-feasibility study include:

Availability of adequate market (or beneficiaries)

project growth potential
investment costs, operational cost and distribution
costs
demand and supply factors; and
social and environmental considerations

If the project is appeared to be sound the next

sages is a feasibly study.
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Identification (Cont …)
Constraints on the development process due to
shortage of essential infrastructure facilities.
Unusual events such as,
◦ draughts,
◦ floods,
◦ earth – quakes, hostilities, etc
From multilateral or bilateral development
agencies and as a result of regional or
international agreements in which the country
participates.

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 Identification (Cont …)
2. Micro Level

The identification of unsatisfied demand or

needs.
The need to remove shortages in
◦ essential materials,
◦ services or
◦ facilities that constrain development efforts;
The initiative of private or public enterprises
in response to incentives provided by the
government;

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Identification (Cont …)
The necessity to complement or expand
investments previously undertaken.
The suggestions of financial institutions and
development agencies.
Study of new Technological Development.

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Question
1. One is not the source of project idea
A. Market based
B. Resource base
C. Technical specialists
D. Need based
E. None

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 Idea Generation (Cont …)
However, there are certain broad guidelines which
are helpful in the generation and screening of
project ideas

Project identification commonly follows the

following procedure
1.Generation of ideas
2.Monitoring the environment
3.Corporate appraisal ( self assessment)
4.Preliminary screening
5.Project rating index.

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 Generation of ideas
Most of the new projects ideas are a result of
◦ Once specialized technical knowledge or
◦ Marketing expertise or
◦ Some other competence

To stimulate the flow of project idea the following are

helpful
i. Analysis of Strength, Weaknesses, Opportunities
and Threats (SWOT):
◦ SWOT analysis represents a conscious and deliberate , and
dynamic effort by an organization to identify opportunities
that can be exploited.
◦ Periodic SWOT analysis facilitates the generation of new
idea
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 Generation of Ideas (Cont …)
ii. Clear articulation of objectives

The operational objectives of the organization may help

to generate ideas
The operational objective of business firm for example,
◦ Cost reduction
◦ Productivity improvement
◦ Increase in capacity
◦ Expansion and growth

Can be helpful in generating the project idea

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Monitoring the environment
The organization must systematically
monitor the environment in which it will
operate
In other words the organization is
expected to monitor the following key
environmental factors in relation to each of
identified ideas.
Economic aspects
State of the economy
Possible fluctuation in the economy

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 Monitoring the environment (Cont …)
The degree of integration with the world economy
National policy
Sectoral policy
Government program
Tax policy
Government support
Financial policy
Technological factor
Availability of technology
Accessibility of the available technology

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 Monitoring the environment (Cont …)
Socio demographic factor
Population size and distribution
Education level
The nature of competition (for business firms
Number of firms in the industry
Nature of entry
Nature of input supply
Availability
Cost of row material

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 Self assessment and scouting the
project idea
A realistic appraisal of the organization’s strength and
weakness is essential to select the best idea that
can be realized as a successful venture
To screen the project idea in terms of this aspect the
following suggestions are helpful
a) Analyze the industry (sector) and analyzing the
organization in terms of,
Its capacity (I.e., whether the organization has
the capacity to implement or to put into practice
the proposed idea).
Analyze the project in term of the benefit
(profit) that it will provide to the society ( firm)
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 Self assessment (cont …)
b) Examine the input or resources requirement and
firms ability to make it available
c) Review its innovativeness
d) Study government plan, outlays, and guidelines:
This analysis is important because;
It will help to see if the idea is in line with the
government priority area
To check if there are guideline that need to be
followed if the project idea is acceptable.
f) Suggestion of financial institutions and development
agencies. (that is investigating priority area of
development agencies )
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 Preliminary screening
In some case it is possible to have a long list of
project ideas.
In such cases some kind of preliminary screening is
required to eliminate ideas which are not
promising.
For that purpose the following aspects could be looked
into
a) compatibility with the promoter: The idea should be
compatible with
◦ the vision,
◦ mission,
◦ and goal of the promoter
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 Preliminary screening (cont…)
In business venture, it should be compatible with
the owner’s objective. In other words,
It has to fit with the personality of the owner
Acceptable to the firm’s owner

It offers the prospect of rapid growth and high return

b) Consistence with government priority: Evaluate the

project idea in terms of the government priority. Here
we ask questions like,
Is the project consistent with the national goal and priority ?
Are there any environmental effect ?
Will there be any difficulty to obtain permission?

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 Preliminary screening (cont…)
c) Availability of inputs
d) Adequacy of the market
e) Cost of the project:
f) Acceptability of risk level: The desirability of the
project idea depends upon the level of risk
associated with it

When a large number of project ideas are

evaluated, it may be helpful to streamline
the process of preliminary screening.
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Discussion

Discuss about the possible source of project ideas

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