What factors are considered in the preliminary screening of a project?

Preliminary screening is required to eliminate ideas which prima facie are not promising. For this purpose the following aspects may be looked into: • Compatibility with the promoter • Consistency with the governmental priorities • Availability of input • Adequacy of market • Reasonableness of cost • Acceptability of risk level

Compatibility with the promoter
This point refers that the idea must be compatible with the interest, personality and resources of the entrepreneur.

Consistency with the governmental priorities
A project must be compatible with the national goal, governmental policies and regulatory framework. The following questions should be considered for analyzing the point: - Is the project consistent with national goals and priorities? - Are there any environmental effect? - Can the foreign exchange requirements of the project be easily accommodated? - Will there be any difficulty in obtaining the license for the project?

Availability of Inputs
The required resources for the project should be assured in a reasonable way and logical cost. We should consider the following items in the time of assessing the availability of inputs: - Are the capital requirements’ of the project within manageable limits? - Can the technical know how required for the project be obtained? - Are the raw materials required for the project available domestically at a reasonable cost? - If the raw materials have to be imported, will there be problem? - Is the power supply for the project reasonably obtained from external sources and captive power sources?

Adequacy of market
The size of the present market must offer the prospect of adequate sales volume. Additionally, there should be a potential for growth and a realistic return of investment. We must consider the following factors in the time of examine the adequacy of market: - Total present domestic market - Competitors and their market share - Export market - Quality price profile of the product vis-a- vis competitive product - Sales and distribution system - Projected increase in consumption - Barriers to the entry of new units - Economic, social and demographic trends favorable to increase consumption - Patent protection

Reasonableness of cost
The cost structure of the proposed project must enable it to realize an acceptable profit with a price. The following should be examined in this regard: - Cost of material input - Labor cost - Factory overhead - General administrative expense - Selling and distribution cost - Service cost - Economies of scale

Acceptability of Risk level
The desirability of a project is critically dependent on the risk characterizing it. In the assessment of risk- a difficult task, indeed- the following factors should be considered: - Vulnerability of business cycle - Technological change - Competition from substitutes - Competitions from imports - Governmental control over price and distribution

What is project rating index? What steps are required to prepare a PRI?
PRI is a rated index of the preliminary screening of a project with its weighted score of the factors selected for screening. The index score is compared with the hurdle/ cut off score and the project is accepted when it satisfies the hurdle score limits. The following steps are required for preparing a PRI: 1. Identify factors relevant for project rating 2. Assign weights to these factors 3. Rate the project proposal on various factors, using a suitable rating scale 4. For each factor, multiply the factor rating with the factor weight to get the factor score 5. Add all the factor scores to get the overall Project Rating Index

Construct a PRI with eight factors and using a 5 point scale. The hurdle rate is 4.25 Give weights to the factors as your deem fit. Comment on the result.

Factors Input availability Technical know how Reasonableness of cost Adequacy of market Complementary relationship with other products Stability Dependence of firms strength Consistency with governmental priorities Total weight of factor

Factor Weight 0.15 0.10 0.20 0.25 0.05 0.10 0.10 0.05 1.00

VG 5 * * *

Rating Factor G A P VP score 4 3 2 1 * 0.60 * 0.30 1.00 * 1.00 0.25 * 0.40 0.50 0.20 4.25

* Rating index

Comment: Our predetermine hurdle score was 4.25. We see that the above rating index can satisfy our score. That’s why we can accept the project.

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