Compiled by Compiled by Compiled by Compiled by

S.Rengasamy
Madurai Institute of Social Sciences

S.Rengasamy- Tools & Techniques for Analyzing Livelihoods & Making Effective Intervention

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Content Content Content Content
Part I:Tools & Techniques for Livelihood Analysis & Intervention
The need & importance of tools in livelihood promotion 4
Box Why investigate livelihoods 4
Box DFID –Methods of livelihood analysis 5
Box Various participatory methods & its uses 5
Participatory methods & livelihood analysis 6
Importance of participatory methodologies 6
Box Classification of stages in community work / livelihood promotion 7
Box Meaning of instrument, tools …. 7
Meaning of a tool 7
Box Levels of livelihood profiles 7
Box Tools suggested by IMM in its SLED approach 8
Box Livelihood analysis. Strength & weaknesses of various research methods 8
Tools & techniques in designing livelihood promotion ISLP Model 9
Box Stages in livelihood analysis 9
Dia Stages Steps Tools 9
Step 1. Getting to know the people 10
Box Uses of livelihood information 10
Box Livelihood intervention Points for consideration 10
Step 1.Understanding the diversified livelihood portfolio in the area 10
Box Importance seasonal diagram 10
Getting to know the livelihood profile of the poor people 11
Box Checklist to understand the livelihood profile 11
Step 2. Assessing the factor condition 11
Box Assets description 11
Tab Additional information useful to understand factor condition 12
Talking to key informants 13
Box Suggested key informants 13
Step 3. Understanding the local demand conditions 13
Box Extractive & empowering methods 14
Step 3.1.Identifying enterprises in the area 14
At the village 14
At the market 14
Box Social metabolism 14
Box Looking at the market place 15
Step 3.2. Mapping all that go out and come in 15
Dia Functions of Trade 15
Tab What to look in to the local market - Local markets –What comes in Local markets –What goes
out
16
Box Market development & poverty reduction 17
Stage II. Selecting livelihood activities suitable for the area 18
Step 1. Triangulation 18
Tab 1.Activity Analysis 2.Finding the suitability of activity 18
Step 2. Understanding the demand conditions better 19
Box Why look at the demand condition: A lesson 20
What do we look for in the market 20
Size of the market, Growing market, Dynamism, Transparency, Low barriers, System etc… 20
Stage III. Getting to know the selected activity Step 1. Deciding an intervention 21
3 E Exercise (Exercise for Exploring External Environment) 21
1. Identify key informants 2. Develop questionnaire /check list for assessment 3.Scoring by key 22

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informant 4. Aggregate scores 5. Compare scores of different activities 6.Identifying
bottlenecks 7. Identifying interventions
Stage 2. Overlaying organizational competency 25
Step.2.1. identifying intervention that can help to overcome bottlenecks 26
Step 2.2. Assess organization’s competence 26
Tab Assessing organization’s competence 26
Box Listen to your heart as well 27
Tab Levels of livelihood profiles and how it helps 28
Tab Information to be collected, tools to be used in relation to livelihood themes 29
Part II
Viability, Range of goods, Clustering, Internal & External Economies, Backward & Forward
Linkages.
30-34
Part III: Sub sector Analysis / Value Chain Analysis
Box Footprints of commodities 35
Why sub sector analysis 35
Box 3 E Exercise 35
Dia Sub sector model 36
Dia Local Global value chain 36
What is a sub sector 37
Box Value chain /Sub sector analysis can help 37
Box Elements of sub sector analysis 37
What is sub sector analysis 37
Dia Steps in sub sector analysis 38
Step A: Preparing a preliminary sub sector map 38
Getting to know the sub sector 38
Dia Sub sector map : Green Beas for export 39
Dia Stages in enterprise value chain 39
Dia Green Beas for export –Constraints and business service identification 40
Box Value chain 41
Box What does value chain analysis entail 41
Step B:Interviewing key informants 41
Box Sectors, Clusters & Networks 42
Box Value chain governance 42
Box Charcoal value chain 43
Box Milk subsector value chain 44
Step C:Drawing a preliminary sub sector map 45
Refining the understanding of the sub sector 45
Box Social relationship in a charcoal value chain 45
Specifying the institutional context 45
Tab Regulation, Promotion, Credit, other institutional factors 46
Step B: Specify the environmental context 46
Box What does upgrading means 47
Step C: Refine the subsector map 47
Dia Rice chain in Thailand 47
Step D:Quantify overlays of particular interest 48
Step 3: Analyzing sub sector dynamics and leverage points 49
Analyzing the dynamics of the sub sector –i.e. Key demand, Technological change, Profitability,
Risk, Barriers to entry, Large firm behavior, Input supply, institutional support, Identify sources
of leverage points
49-50
Choosing the right intervention point 51



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Tools and Techniques for analyzing livelihoods & intervention
Tools and Techniques -A way to losing less and winning more
Tools and Techniques help us to understand
Where are we? Where do we want to be? How best can we get there?
The need & importance of tools in livelihood intervention
Tools and techniques are the means, using which we can understand a phenomena; using
which we can make right decisions; using which we can improve our relationship with the
community; using which we can improve our efficiency. Tools and techniques are neutral and
its efficacy depends on our ability to use/ manipulate it.

For example taking a survey to understand a social condition. If survey is a tool, then
designing an interview schedule, interviewing the respondents and making observation
during survey are all can be considered as techniques. The process not only helps us to
understand a social phenomenon, but it also helps us to relate with the respondents, provides
clarity about the reality and that clarity improves our efficiency.

There are lot of tools and techniques available to design a livelihood programme. The first
step in designing any livelihood intervention is to understand the livelihood pattern of the
people with whom we have decided to work.

In the past development workers used socio economic surveys or baseline surveys to
understand communities and people. There are lot of similarities in socio economic surveys
of the past and our present attempt to understand the livelihood profile of the people. Though
fixed line telephones and cell phones do the same function one can understand the differences
also. Like that understanding people’s livelihood cannot be fully actualized if we solely
Why investigate livelihoods?
The SL approach offers an opportunity to improve poverty reduction efforts by taking
an all round view of the circumstances of the poor, as they themselves view them,
rather than jumping to early conclusions and immediately proceeding to conduct
isolated, in-depth analysis of particular attributes.
• What appears to be the mainstay of household income – e.g. a cash crop such as
chili or cotton? or a particular type of paid employment – may make a much smaller
contribution to the family livelihood than is expected from initial impressions.
• Asset constraints vary from place to place, group to group and across income levels;
poorer groups typically have more limited access to assets and are more constrained
in their choice of livelihood strategies than richer groups.
• Different social groups within a community typically experience differing risk factors
in their livelihoods; these need to be understood if vulnerability is to be reduced.
• The capability of individuals and groups to exercise choices may be constrained by
social and governance factors that are not immediately obvious.
SL analysis provides a holistic framework for understanding the need for, and likely
focus and objectives of, subsequent development activity. Such activity may itself be
sectoral, though its objectives are most likely to be framed in terms of overall poverty
reduction
S.Rengasamy- Tools & Techniques for Analyzing Livelihoods & Making Effective Intervention

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depend on survey methodology only. We need to use variety of tools and techniques that are
painstakingly developed by the development workers over the period of time.


DFID Suggested Methods for Livelihood Analysis
Environmental checklists
Gender analysis
Governance assessment
Institutional appraisal
Macro-economic analysis
Market analysis
Participatory poverty assessment techniques
Risk assessment
Social analysis
Stakeholder analysis
Strategic conflict assessment (SCA)
Strategic environmental assessment (SEA)
Secondary data
Key informants
Individual and household case studies
Participatory Methods


Various participatory methods and their uses
PRA method Brief description Particularly useful for
Timelines Historical profiles of longer-term events
or trends
Vulnerability context, policy change
Seasonal
calendars
Graphical depiction of seasonal events or
trends
Vulnerability context, assets,
strategies
Transect
walks
Land-use maps based on walking
through particular areas
Quality and quantity of natural capital
Resource
maps
Maps identifying natural and other
resources
Existence of shared natural capital
Social maps Maps locating key social features Access to services and infrastructure
Preference
ranking
Ordinal ranking based on pair wise
comparisons, with reasons stated for the
choices made
Livelihood strategies, assets, access
to services
Matrix ranking Preference ranking based on defined
criteria with scoring
Access to infrastructure, livelihood
strategies, investment choices
Wealth
ranking
Assigning households to well-being
categories
Strategies and assets needed to exit
from poverty, relations between
social groups
Venn
diagrams
Diagrammatic representation of key
institutional interactions
Social capital, relations between
social groups, institutional and policy
environment

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It is the experience of the livelihood promoters throughout the world that using participatory
methodologies is the best means to understand the livelihood profile of the people.

Participatory Methods to Livelihood Analysis
Livelihood concept itself is the result of our improved understanding and knowledge about
the poverty and poor and the improvement itself as claimed by the development workers, is
the result of the application of participatory tools and techniques. Hence understanding of
livelihood and to make appropriate intervention also demands the application of participatory
tools and techniques. Livelihood promoters used variety of tools ranging from social mapping
to market mapping exercises.

Practically any tool or methodology that has been proved to be effective, used in the right
way and bearing in mind the principles that development workers have agreed upon, can be
useful in putting the Sustainable Livelihoods Approach into action. A key feature (in line
with being people-centered) is that the development workers should seek to use tools that
not only help them to work effectively but also can be put in the hands of the people who are
the subjects of the development process so that they can take a direct role in making their
own decisions about their futures.

The key point regarding the tools that are used as part of the Sustainable Livelihoods
Approach is the way in which they are used and the attitude of those who deploy them. Even
the best of tools, no matter how effective, efficient, participatory and empowering it is
supposed to be, will contribute little to positive development outcomes if it used in the wrong
way.
Importance of Participatory Methodologies
For example, the various participatory field tools that are commonly used during “PRA” can
be very effective if used properly – as a means of empowering local people to do their own
analysis and planning. But very often they are used by development workers as a means of
extracting information and merely confirming their own preconceptions and prejudices. Used
in this way they can be very damaging. On the other hand, “old-fashioned” tools like formal,
questionnaire surveys, if carefully planned tested and implemented, leaving time for
interaction with local people can be extremely powerful tools both for learning about
livelihoods and for empowering local people.

Because the Sustainable Livelihoods Approach encourages adaptability and needs to be
“reinvented” every time it is applied, new tools are constantly be added to the list of those
that can be used. Development workers who are being encouraged to adopt the Sustainable
Livelihoods Approach should also be encouraged to think of new tools, or adapt tools that
they are already using so that they reflect the principles of the Sustainable Livelihoods
Approach and help to implement it more effectively.

There are many tools and techniques that livelihood promoters can use to assist in moving the
communities forward. Some of the tools are examined here and an attempt has been made to
classify it so that livelihood promoters can find a tool or technique appropriate for their
objectives





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Levels of Livelihood Profiles
Livelihood Zone Maps - Area Level
A livelihood zone map delineates geographic areas within which people broadly share the same
livelihood patterns, including access to food, income and markets. It facilitates monitoring and
targeting of assistance geographically.
Livelihood Profiles - Community level
A livelihood profile is a description of household livelihood options--including food and income
sources and market access--of different wealth groups in the livelihood zone and the hazards to
which they are vulnerable. It facilitates design of seasonally specific monitoring systems, helps
determine trends in monitoring information by season and household type, and provides context to
understand the implications of a shock.
Livelihood Baselines –Household Level
A livelihood baseline is a more detailed, quantified breakdown of household livelihood options
(food, income, and expenditure patterns) for different wealth groups in the livelihood zone,
highlighting market links and constraints on and opportunities for economic growth. It is linked to
analytical spreadsheets that are used to assess whether people will be able to meet basic survival
requirements and/or protect their livelihoods in the short-, medium- and long-term.
Instrument refers especially to a
relatively small precision tool used by
trained professionals: Implement is the
preferred term for tools used in agriculture
and certain building trades: Utensil often
refers to an implement used in a
household, especially in the kitchen:
Appliance most frequently denotes a
power-driven device that performs a
specific function:
Classification of stages in community work /livelihood promotion
Stages in livelihood
promotion
Tool or technique focuses on
Pre or Beginning conversing, discussing, researching, learning, sharing
1 Assess benchmarking, brainstorming, measuring, researching, analyzing, evaluating
2 Focus planning, prioritizing, deciding, focusing, resolving
3 Act doing, completing, moving, carrying out, implementing
The Process – the flow Guiding, steering, leading, facilitating, presenting, communicating,
disseminating—these are techniques that can help steer or guide a
community through a process. These “Processes” provide the necessary
lubricant that allows things to happen and often link the Beginning-Assess-
Focus-Act steps.

Tools and techniques that are used by the
livelihood promoters are relatively simple to
self- administer, easy to understand and
relatively inexpensive. Their accessibility varies:
some are self-administered; others could be
conducted by a facilitator with a broad
knowledge of community processes, while a few
would require a facilitator with specialized
training.
Meaning of a tool
There is no universal definition for tools (Tool applies broadly to a device that facilitates
work- any object, skill, etc., used for a particular task or in a particular job- Something that is
used to assist with the modification of an object or situation. Something that is used to create
or destroy) and techniques (The systematic procedure by which a task is accomplished- any
method or manner of accomplishing something). We believe tools and techniques to be
interventions that assist a livelihood promoter to move forward or reach goals.






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Tools suggested by IMM in its SLED approach
In order to put the sustainable livelihood principles into practice and respond to the issues raised by the
framework, obviously we need tools. Any tool that works can be used (provided they also allow us to work
according to the principles).
Examples of tools have been used in the course of interventions that follow the principles of the
Sustainable Livelihoods Approach include:
•participatory learning approaches, including participatory appraisal – PRA - and participatory learning and
action – PLA
•appreciative enquiry
•formal survey methods
•community planning and community-driven development approaches
•trade-off analysis
•logical framework planning
•participatory monitoring and evaluation
•stakeholder analysis
•informing and influencing, and advocacy approaches
•institutional analysis
•policy analysis
…….or practically any other tool or methodology which can help us, and the people who are the subjects of
the development process, to develop an understanding about the objectives, scope and priorities for
development.
The key point regarding the tools that are used as part of the Sustainable Livelihoods Approach is the way
in which they are used and the attitude of those who deploy them. Even the best of tools, no matter how
effective, efficient, participatory and empowering it is supposed to be, will contribute little to positive
development outcomes if it used in the wrong way.
For example, the various participatory field tools that are commonly used during “PRAs” can be very
effective if used properly – as a means of empowering local people to do their own analysis and planning.
But very often they are used by development workers as a means of extracting information and merely
confirming their own preconceptions and prejudices. Used in this way they can be very damaging. On the
other hand, “old-fashioned” tools like formal, questionnaire surveys, if carefully planned, tested and
implemented, leaving time for interaction with local people, can be extremely powerful tools both for
learning about livelihoods and for empowering local people.
Because the Sustainable Livelihoods Approach encourages adaptability and needs to be “reinvented” every
time it is applied, new tools are constantly be added to the list of those that can be used. Development
workers who are being encouraged to adopt the Sustainable Livelihoods Approach should also be
encouraged to think of new tools, or adapt tools that they are already using so that they reflect the
principles of the Sustainable Livelihoods Approach and help to implement it more effectively.
Livelihood Analysis: Strength & Weaknesses of various research methods
Type of
research
Strengths Weaknesses

Qualitative
Provides the initial basis for further
quantitative work (may be sufficient on
its own)
More participatory
Can be quick and low cost
Good for social processes and context
Can explain causes of quantitative
findings
More prone to bias because of reliance
on interpretation
Difficult to infer population characteristics
from a small sample
Can be very time-consuming
Quantitative
Can be more concrete, systematic
Can infer population characteristics from
a small sample
Can test the significance of quantitative
findings
Concreteness can mislead
Can be very extractive
Tendency to collect too much data and to
produce



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Tools & Techniques in designing livelihood promotion-ISLP Model

















































Stage I: Observing and Understanding the Local Economy
Step 1: Getting to Know the People: Understanding their diversified livelihood portfolio
Step 2: Assessing Factor Conditions
Step 3: Understanding Local Demand Condition:
- Identify enterprises existing in the area…
- Mapping all the products and services that go out and come in
Stage II: Selecting Livelihood Activities Suitable for the Poor in the Area
Step 1: Triangulation: Putting the information on people, the factor and demand conditions together
Step 2: Understanding the Demand Condition of the short-listed activities better
Stage III: Deciding on intervention
Step 1: Exercise for 3-E
Step 2: Overlaying Organizational Competence
Additional Tool: Sub-sector Analysis
Stages Steps Tools
Stage I
Observing & Understanding the
Local Economy
Stage II
Selecting Livelihood Activities
Suitable for the Poor in the
Area

Stage III
Deciding on
intervention

Getting to Know the People:
Understanding their
diversified livelihood portfolio
Assessing Factor Conditions
Understanding Local Demand
Condition
Identify enterprises existing in
the area
Mapping all the products & ser
-vices that go out and come in
Triangulation: Putting the
information on people, the
factor and demand conditions
together

Understanding the Demand
Condition of the short-listed
activities better
Exercise for 3-E

Overlaying Organizational
Competence
Tools that are used in
livelihood analysis are not
discrete tools – they overlap
internally (e.g. market
analysis or institutional
appraisal might both make
use of stakeholder analysis,
and gender analysis will
feature as a component of
most other types of
analysis).
• Some tools are relevant for
all aspects of SL analysis.
Others are more appropriate
for particular framework
components or particular
levels of analysis (local,
district, national, etc.).
• Though some tools are
‘traditional’ tools, it is
important to use them
creatively. The SL approach
demands more of existing
tools while the SL principles
and framework provide the
basis for adapting tools to
new uses. The focus should
be on development
outcomes not disciplinary
orthodoxy
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Livelihood intervention – points for consideration
• How will the proposed livelihood opportunities meet the needs of the household?
• How well does it match the resources and skills available to the household?
• How will it fit into the daily and seasonal rhythms of the household?
• Will it increase the household’s income or assets?
• Will it reduce or enhance the risks faced by the household?
• What assurances can be put in place to mitigate risk?
• Will the activity require organizing poor households in groups?
• How capable is the household to participate in such organization?
• What inputs will it require from us?
Step 1: Getting to know the people
Livelihood means life. Before any livelihood intervention is planned it is important to know
present livelihood pattern of the people. Their culture, attitudes, skills and life-style shape the
ultimate choice of livelihoods.
Let us remember that the poor people, even
before our intervention, are deployed into
different activities. Influencing any one of
them, or introducing a new piece of action often
happens at the cost of one of the existing
activities.
There are two processes that we need to follow
to get an understanding of the livelihood profile of the people.
• Understanding the diversified livelihood portfolio in the area
• Getting to know the livelihood profile of poor households



Understanding the diversified livelihood portfolio in the area
The livelihood profile of a poor household composed of: the livelihood capacities,
livelihood strategies and livelihood portfolio. The poor people are often engaged in more
than one activity for their livelihood in order to maintain their cash-flow and also as a risk
management strategy. To promote livelihoods for poor people, it is important to understand
the livelihood profile of that people in the area, so that the proposed intervention fits into
people’s daily and seasonal rhythm of life.
Uses of Livelihoods Information
Early Warning and Monitoring Systems
Assessing Emergency Food and Non-food
Needs
Answer Targeted Questions on a Range of
Livelihoods-related issues
Importance of Seasonal Diagram to understand livelihoods
1. First, identify three groups of people from within the group of people we would like to work
with. These could be groups from three villages, or three communities or any other social
segment we are working with.
2. Go to these poor families and do a seasonality mapping exercise to understand their
livelihood pattern throughout the year.
3. Make a list of the various activities they are involved in at different points in time.
Understanding the income from various sources may help us formulate the seasonality
diagram. Often poor people find it difficult to assess their income. Therefore, we may try to
understand their expenditure pattern to know their income pattern and draw the seasonality
diagram.
4. Also try to understand the major bottlenecks in each activity. Make a note of these.
5. Make a note of the months in a year they are without work or migrate.
6. Consolidate the seasonality diagrams from different groups to develop a list of various
activities people in the area are involved in, with an indication of their magnitudes.
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Getting to know the livelihood profile of poor households
Understanding the livelihood profile/ pattern of any area will definitely result in better
understanding of the livelihood capacities of the people in the area and livelihood strategies
used by them. In addition to this one has to understand the livelihood profile of the poor
people using the following check list
Step 2: Assessing Factor Conditions
Factor Conditions play an important role in delimiting what livelihood opportunities can be
taken up by people. Therefore, one need to know the factor conditions of the area in some
detail. Livelihood choices are dependant upon availability and/or access to various resources.
DFID Framework for Sustainable Livelihoods is a very useful way of looking at the
conditions that influences livelihoods.

Varieties of tools are used to understand the factor conditions. Natural and physical resources
can be best understood by using resource maps. Social resources can be best studied by using
venn diagrams and human resources with social maps.

Natural resources
Land: terrain, quantum, quality, distribution
and uses -Water: annual rainfall,
groundwater levels, sources of irrigation -
Humidity -Forests: quantum, tree species
and usage Livestock -Mineral wealth-
Energy sources
Are there any environmental threats to these
natural resources?
B. Physical resources
Irrigation infrastructure: Tanks, Canals, Bore
wells Markets: Shandies, Haats, Market yards -
Warehouses – Electricity -Roads, Railway
lines-Transport facilities
Post Office, Banks-Health facilities
D. Social resources
Relationships of trust and reciprocity within
and between communities -Gender relations
Caste relations -Agrarian relationships
E. Financial resources -Available sources of credit
– formal and informal
Interest rates and collateral requirements on
different credit sources -Credit requirements of
different income/occupational groups of people -
savings mechanisms -Other financial services
C. Human resources
Population -No. of households and family
size -No. of earning members per family
Labor availability and skill levels –
manual, craft, service and knowledge base
Entrepreneurial ability of various
communities in the population -Education
profile of population - Health profile of
population -Gender division of all the above

The following check list may help to understand the livelihood profile of the poor people
What are the major needs of the family?
(1)
(2)
(3)
(4)
(5)
Which is the most critical period of the year?
Which is the most reliable and most often practiced copping mechanism of the family?
What is the most critical input the family is missing to enhance its income/livelihoods?
What is the most critical linkage the family is missing to enhance its income/livelihood?
What is the relative importance of credit with respect to all other missing inputs for the
selected/proposed venture to enhance income?
What is the maximum volume the family can handle properly?
What is the minimum amount of credit the family immediately need for what it has a well thought
out viable plan?
What should be the timing of credit?
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Additional information that may be useful to understand the factor conditions
S.No Particulars Information Needed Sources
1


District
Background


Location
Rainfall
Climate
District Economic Census: District
Statistical Office/ Planning Office in some
districts
District Potential Link Plan (published
by NABARD for every district)
District Credit Plan (published by the lead
bank of every district)
2 Population

Rural - male, female
Urban - male, female
Computed Annualized Growth
Rate - Rural, Urban
District Census Data: District Statistical
Office/Planning Office in some districts
3 Literacy Rate Rural - male, female
Urban - male, female
Computed Annualized Growth
Rate - Rural, Urban
District Census Data: District Statistical
Office/Planning Office in some districts
4

Workers
Participation Rate

Rural - male, female
Urban - male female
Computed Annualized Growth
Rate - Rural, Urban
Workers Classification as per
NIC
District Census Data: District Statistical
Office/Planning Office in some districts
5

Land

Land Use Classification
Cultivable Land
Classification: small, marginal,
medium, etc. both acre-wise
and landholding-wise
Seasonal Crop Report: ICAR
6



Agriculture Cultivable Lands: Net, Gross &
trend Reasons, for changes, if
any
Seasonal Crop Report
(Compare data
with adjacent
district or state
averages)
Major food crops: cultivable
area, productivity & trends
Major Non-food crops:
cultivable area, productivity &
trends
Availability of Market
Infrastructure
Constraints in agriculture
production & marketing
NABARD: District Potential Link Plan
LEAD Bank: Annual Credit Plan
APMAC
Discussion with Stakeholders
7 Water Irrigated Land: Net, Gross,
trend Sources of Irrigating
Water
Seasonal Crop Report
8

Animal Husbandry

Major animals reared:
Population, products production
Infrastructure for value addition
& marketing trends
Marketing Trends and
Constraints
Census of Animal Husbandry
NABARD: District Potential Credit Link Plan
Discussion with Stakeholders
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Suggested Key informants who can provide valuable information in a very short time.
Market traders or authorities, Bankers, Heads of villages, caste and other groups, members of
SHG, water user associations, women’s groups, officials from promotional and regulatory bodies,
NGOs, Researchers, Teachers
9

Forestry

Coverage, type & trend
Forest Produce - kinds and in Rs
and trends
Participation of JFM
Scope for income generation
Seasonal Crop Report
NABARD: District Potential Link Plan
Directorate of Economics & Statistics
Discussion with Stakeholders
10 Mining and
Quarrying
Major elements mined/quarried
Production - kinds and in Rs
Employment opportunities:
Scope
Directorate of Economic and Statistics
Discussion with Stakeholders
11

Manufacturing

Units as per NIC 2 digit
classification,
Persons employed
Employment opportunities:
Scope
DIC
Discussion with Stakeholders
12

Services

Identify potential activities by
assessing current employment,
employment absorption capacity
by calculating Computed
Annualized Growth Rate, etc
Random survey in at least five market
areas

13 Financial Services Scheduled commercial Banks:
Loan outstanding sector-wise:
accounts and amounts
Portfolio Analysis
NABARD: District Potential Credit Link Plan
Lead Bank: Annual Report; RBI: Banking
Statistics
Discussion with LEAD Bank
14 Government
Schemes
Performance status: Various
development schemes
Discussion with DRDA, Govt. departments

In addition to these secondary materials, participatory tools can also be used for validating
the information and sift those relevant in our context. Participatory Tools are useful for us to
understand the perspective of the community; differences among different groups within the
community and on the resources and livelihood opportunities they see. Without this, one
may likely to design initiatives that simply do not cater to their needs or interests. Designed
well, participatory tools can also initiate a sense of understanding and ownership among the
community one wish to help.
Talking to Key Informants:
After doing a preliminary observation to understand the diversified livelihood pattern as well
as the factor conditions of the area, one will be able to frame relevant questions that will fill
the gaps in our information. Also, the background information gives us a complete
knowledge and feel of the place and puts us in a better position to seek information. This
understanding will be further sharpened by talking with the key informants
Step 3: Understanding Local Demand Condition:
After having looked at the factor conditions in the area, we have to look at the demand
conditions. The activities that people take up at the local level are shaped by the local demand
conditions. Therefore, it may be useful for us to look at the activities people are involved in
from the perspective of understanding the demand condition as well.

Marketing and Research Team (MART), New Delhi, has developed a methodology, 3M
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Social Metabolism… Like any living system, a community consumes material and
energy inputs, processes them into usable forms, and eliminates the wastes from the
process. This can be seen as "metabolism" of industry, commerce, municipal operations,
and households. Understanding the pattern of these energy and material flows through a
community's economy provides a systemic reading of the present situation for goal and
objective setting and development of indicators for sustainability.
Extractive vs. empowering methods
Adoption of an SL approach indicates acceptance of the fact that answers are not known, and that
learning processes that involve poor people are required. In this context, tension often arises
between
extractive (extracting information for use by others) and empowering (seeking to empower those
who participate) objectives of various field methods. It is becoming clear, however, that the
objectives of the two are complementary rather than conflicting.
This section of the Guidance Sheets is mainly concerned with finding out about livelihoods in order
to inform project design, monitor the effects of development activity and evaluate outcomes. It
therefore tends to emphasize more extractive methods. It is not about project implementation,
nor about ways to ensure that projects involve and empower intended target groups. However,
many projects whose goal and mode of implementation are empowering in character are preceded
by quick and effective extractive exercises to discover pre-project conditions and interim project
effects.
For example, ranking methods used to reveal community priorities for primary healthcare
(extractive) can lead to a healthcare delivery project that incorporates participation in establishing
the operational guidelines for healthcare workers (empowering).
(micro-planning, micro-markets, micro-finance), which can be used for looking at the
demand conditions in a local economy. A two-step process adapted in the 3M methodology
can help us understand the demand conditions in the local economy.
- Identify enterprises existing in the area…
- Mapping all the products and services that go out and come in

3.1 Identify enterprises existing in the area
Identifying of enterprises (enterprise here means all economic activities that people take up in
the area) existing in the area needs to be done at two levels: at the village level and at a
market center that caters to the area.
At the Village
Start with generating a list of all enterprises in the village. 1. This can be done by observing
the economic activity going around the village. 2. Asking the villagers about the enterprises,
especially home-based enterprises, that is not visible from outside. 3. Try to get an
approximate number of the enterprises in each category. Remember that enterprises may be
based on the farm (such as production and processing agro-products and animal husbandry),
may involve manufacturing (such as weaving, carpentry and rolling bidis) or may provide
services (such as repairs, retail, health and education). Milch animals and a private school are
as much an enterprise as a black smithy.
Please remember to count every enterprise. This enumeration of the types of enterprises will
give us a fair idea of the goods and services made or provided within the village. It may also
give us some new ideas.
At the Market Center
There are some trade or market centers in every local area. These could be small towns where
there are weekly markets; could be taluka/ mandal headquarters, or even district headquarters
or other larger townships. Most local people visit these markets periodically.
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One needs to look at one such market center in details to understand some of the important
features of the local economy.

3.2 Mapping all that go out and come in
Local people buy some of the things they need, like food grain in the local market. This is
produced at home or by from their neighbors. But some things are not produced locally. For
example, the utensils they use. These come from outside and are sold in the local market.
The local people also sell some of the things they produce in the local market. For example,
in local markets one will find people selling vegetables produced locally. Sometimes people
in the area, who do not produce them buy them, sometimes traders from outside come and
buy.

Therefore, one can see the Local Economy is a consumer (of utensils) as well as a producer
(of vegetables). As a consumer, the economy creates opportunities (of buying utensils from
outside and selling those to local people). As a producer, it generates some employment
opportunities (working in the vegetable fields). We illustrate this with the following diagram.













Looking at a Market Place
1. Walk around the local market to get a general idea about its size and types of products and
services sold. Fill up the table (What to look into the market) given below. Enumerate every
enterprise.
a. This gives us a complete list of activities being pursued in the area
b. It also gives us a relative size of each of these activities
2. Organise products and services into categories for interviewing sellers.
3. Collect information from the market owner/contractor (in some cases it could be the
Panchayat/traders association itself) and for counting the number of stalls by product and
service.
4. Others should start to approach sellers and buyers.
5. Select a minimum of one seller for one product category.
6. Conduct in-depth interview with the seller during his free time
7. Sellers often avoid giving the correct sales figures and invariably report low sales. To counter
this, at some point in the interview, quote an absurdly high sales figure to the seller and, to
refute this, the seller will often react by revealing a realistic sales figure.
8. Pick buyers from three different economic strata (i.e. upper, middle, and lower) on the basis
of their spending capacity. Interview buyers Observe how much they spend.
9. Remember to target an equal number of men and women.
10. Start interviews in a non-threatening way by talking about general topics.
Questions regarding their name, age, land holding and income-level should be left to the end of
the interview, by which time they will have opened up.
Functions of Trade
Local economy is a producer Local Economy is a Consumer
Generates
surplus
Supply shortfall
Generates Wages Generate Revenue Generate Demand
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What to look into the local Market
Name of Village:
Population (approx):
S N Major Products/ Services

Space for Tally Mark
(one for every shop)
Total No.
of Shops
Comes in/
Goes out
1
Products
Food Products

2 Beverages and tobacco
3 Textile fabrics only
4 Textile apparel
5 Wood and wood products
6 Paper and paper products
7 Leather and leather products
8 Rubber and plastic products
9 Chemical products/ paints
10 Pottery, chinaware, glass
11 Metal and metal products
12 Machinery and tools
13 Electrical goods
14 Transport equipment, parts
15 Miscellaneous products
16 Services
Repair of electrical items

17 Repair of motor vehicles
18 Hotels and restaurants
19 Freight/ passenger transport
20 Miscellaneous services
Local Markets: What comes in?
SN Product/Services Used
but not produced
Annual Consumption in the Area
Local
Production
Quantity Price/Unit Total Value
e.g.
1
Marie Biscuits 1,000 kgs/ yr Rs 500/ kg Rs.5,00,000 One local
bakery makes
some similar
products
2 Cycles 400 /year Rs. 1,600/
piece
Rs.6,40,000 Not
manufactured
3
4
5
Local Markets: What can go out?
S.No Product/Services
produced locally and
are surplus
Annual Production in the Area
Demanded
where?
Quantity Price/Unit Total Value
1
2
3
4
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1. Why market development as a route to poverty reduction?
The international development community is becoming increasingly aware that poverty is caused by
lack of access to income-earning opportunities and the capacity to respond to these. The nature of
poverty is multi-dimensional but it is generally acknowledged that low incomes are a central feature
of poverty. What are the right conditions to achieve improved incomes? Increasingly it is being
understood that whilst economic growth and private sector development are important these
approaches will only have positive pro-poor impacts if they are driven and owned by people at micro
and meso levels i.e. the people on the ground and in the market system. Subsidized interventions
have largely not worked, and there are many examples such as, including within our own
organizational history.
2. Why don’t markets work for the Poor?
Markets can be a powerful way to get services and products to consumers and to give producers
and workers access to income earning opportunities but they are not totally efficient, equitable or
inclusive, especially in contexts where poverty is acute. The causes of inefficiency, inequity and
marginalization are many and not fully understood but some of them are widely accepted. For
example:
* Blockages in the flows of market information and other types of knowledge (e.g. illiteracy and
lack of communications infrastructure)
* Weakness of public institutions dedicated to the promotion of trade, rural development,
agricultural research, education, law enforcement, etc
* Policies, social norms, and legal frameworks that fail to promote investment, transparency,
competition and sustainable use of natural resources
* Excessive concentration of power and influence in the hands of a few actors
Typically small-scale producers find their interactions with markets are characterized by:
* A lack of resources to meet quality and quantity requirements, and to adapt to changing
conditions
* High transaction costs – increased costs that small (and often scattered or remote) businesses
face in getting the inputs and services they need, negotiating deals and enforcing contracts
* Risks (for small and large enterprises) – lack of control of terms and conditions of purchase;
control of quantity and quality delivered
* Lack of market orientation – small-scale producers tend to lack an understanding of what the
market wants and future trends
3. What is needed to make markets work for the poor?
Markets have the potential to connect marginalised producers to an extensive network and give
them access to valuable commercial and social relations, technologies, experiences and assets that
can help them escape poverty.
A market that works for the poor involves:
* Overcoming exclusion and/or improved access
* Greater affordability (e.g. for poor consumers)
* Greater earnings (e.g. for producers and workers)
* Improved choice
* Reduced risk
* Greater influence (e.g. on policy issues)


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Triangulation is a form of cross-checking the information data collected using several methods
by several researchers several places and at several points of time.
Both of these (consumption & production) create livelihood opportunities. Therefore, one
way of looking for livelihood opportunities is to start looking at the local markets and
understand what opportunities it is creating. These opportunities are activities that essentially
fill the gap between the producers and consumers in a local market.

While surveying the local markets, observe the products and raw materials that are produced
in plenty locally, for instance milk. A part of the milk may be consumed locally, but a large
surplus may remain unconsumed. This surplus gives rise to an intervention opportunity
where it can be value added and exported out. Similarly, some other products, which are not
produced locally, are imported from outside, this gap or deficit is also an opportunity that
provides intervention ideas.

The best sources for this information are manufacturers, traders, retailers, local brokers,
warehouses, government officials and of course the market itself. This will open up
opportunities not only for trading in the products but also forward and backward processing
of available raw materials.
Stage II: Selecting Livelihood Activities Suitable for the Area
Livelihood profile of the people, understanding the factor conditions of the area and
observing the market give a fair understanding of what activities may be appropriate for the
people. In this stage one need to select from amongst these activities, those in which some
interventions can be made.

Step 1: Triangulation: Putting the information on people, the factor and demand conditions
together
Step 2: Understanding the Demand Condition of the short listed activities better.
Step 1: Triangulation
Triangulation of the data is nothing but evaluating all the data so far collected by us on
people’s diversified livelihood portfolio, internal context of the organization, factor
conditions, local demand condition, enterprises existing in the area, products and services that
go out and come in for arriving at a list of an appropriate set of livelihood activities.
Otherwise triangulation means making the information shorter and more precise by ignoring
information that is not reliable. Triangulation means evaluating / overlaying information on
suitability of activity
The following table is an example to illustrate how the information collected can be
triangulated
Activity Suitability
for the poor
in the area
Employment
generation
ability of the
activity
Favorable
demand
conditions
Favorable
factor
conditions
Competence
of the
organization
Total
A b. c d e f g




• First, list out all possible livelihood opportunities observed by us in the Stage-I of our
study (Understanding people’s diversified livelihood portfolio) in Column 1 of this table.
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• Next evaluate each livelihood activity on a scale of 1-5 (where 1 is highly unfavorable and
5 is highly favorable) on the parameters of:
o Its ability to generate employment in the area
o Its demand conditions: the nature of the market
o Its factor conditions: availability of resources required for its production
o Competence of the implementing agency to take up intervention in this area
o Its suitability for the poor in the area.

Fill in the numbers in the table as given below. For example:
Triangulation: Overlaying Information on Suitability of Activity
Activity Employment
generation
ability of the
activity
Suitability
for the poor
in the area
Favorable
demand
conditions
Favorable
factor
conditions
Competence
of the
organization
Total
a. b c d e f g
Keeping
dairy
animals
5 4 4 2 4 19
Vegetable
vending
3 4 3 1 2 13
Vegetable
production
4 3 5 1 2 15



For example large number of people can be employed in the dairy activity, hence highly favorable
(5). Vegetables can employ lesser number of people than dairy but relatively more number of
people can be employed in vegetable cultivation than in vegetable vending, hence 4 and 3
respectively. And so on …..
• Remember that the score has to be given purely on the basis of how we generally feel
about the idea, based on whatever understanding of the area we have developed. No
mathematical or economic tools are to be applied.
• After scoring each of the livelihood ideas on these five parameters, total up the score by
adding the numbers in the last column. Then shortlist those scoring high and eliminate the
others
Now we have a list of a few activities, which have favorable demand in the market, have the
necessary resources (factor conditions) to produce them locally and are suitable for the poor
in the area. Given these positive indicators, one can conclude to some extent that, these
activities can be managed by the implementing agency.
Step 2: Understanding Demand Conditions Better
Economic opportunities in the present-day world can be found in the market. Market means
demand; First start with local demand conditions and slowly move to regional, national and
global demand for these selected activities.

While looking at the market and market trends, it is always good to scan the global or
national markets and assess the characteristics of the market.
For example, the market for fruits and vegetables is growing the world over, but not the
markets for cereals. Therefore, even if the local markets for cereals are larger than fruits and
vegetables, it may be easier to work with the later, than with cereals, if other conditions in our
area permit.
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Why Look at Demand Condition: a Lesson
Way back in 1985, when PRADAN started its first
livelihood project in Kesla, Madhya Pradesh, they
observed the local tribals collect mushrooms that
grew naturally and use them as a part of their
diet. Taking a cue from them, they did a project,
which apparently looked to be a huge success.
In time, Knor Soups, the famous packaged food
giant, became the biggest buyer of mushrooms
from Kesla. Also, Kesla became the largest
supplier of oyster mushrooms to Hyatt Regency
chain of hotels, the second largest buyer in the
country. The total turnover of the mushroom
business reached Rs 4 crores per annum.
Therefore, on the face of it, it was an excellent
livelihood intervention story. But, when some of
the initiators of the intervention went back to
have a look at it after some time, they
discovered some not so complementary details.
They realized that after all the effort and
fanfare, only 220 families were involved in the
cultivation.
So, what went wrong?
The thing that went wrong was, at the outset
the interventionists looked only at the factor
conditions of the region, like, suitable climatic
condition, naturally growing mushrooms,
people’s familiarity with mushroom and so on.
This focus limited their vision and led them to
overlook other opportunities, which could have
had bigger potential in terms of livelihood. If
they had studied the demand conditions first
instead, they would have realized that the total
market size of mushrooms in India was only
about Rs 7 crore. Had they paid attention to
that detail, possibly they would not have taken it
up in the first place as an area of intervention.
Therefore, though both factor and demand
conditions are equally important in the study of
the intervention area, it makes better sense to
start with demand conditions first because it
throws up larger possibilities for intervention,
and gives a better picture of the larger reality.


However, identifying future trend of a product or a service is a complex task. But it needs to
be done. Variety of factors influences these trends:
i. New technologies
ii. Change in people’s lifestyle
iii. Change in demography
iv. Change in political balance
v. Or a mix of all of them
What do we look for in the market?
While scanning the markets, one should
look for:
• Size of the market - Big Size: Large
markets can support large number of
livelihoods. For example, millions of
households depend on wheat production,
while only a few thousand people can
produce psyllium (isabgol) that the whole
world can consume, or a hundred
thousand people can produce all the
bamboo baskets that we need.
Intervention where there is a fairly large
demand makes good business sense
• Growing Market: A growing market
throws up new potential for more people
to join in at different parts. It offers better
opportunities for supporting larger
number of livelihoods. An existing large
demand, which has no future growth or
that which is likely to dwindle, cannot be
called a growing market; therefore it
does not offer a very good prospect
• Dynamism: Markets which are dynamic;
absorb changing technologies; constantly
witness entry and exit of players; offer
scope for a wide range of activities, are
dynamic markets and can support many
livelihoods
• Transparency: Transparent markets are
usually fair, giving all players a level
playing field.
• Low Barriers: Markets with low exit
and entry barriers are an ideal choice.
Usually these markets become very competitive and are efficient.
• Systems: Look for markets which have well developed systems in place
• Support: A well developed chain of related and support industry is usually helpful
Analyzing Market Trend
We need to analyze the market trends carefully. We need to keep our eyes and ears open so
that we can quickly pick up signals of change. We need to consciously keep ourselves open
to such signals.
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In a simple manner, we could plot the market size (either in terms of total production or in
terms of total value) of some of the commodities/ products that are/ can be produced in the
area, on a graph.
Stage III: Getting to know the selected activity:
Deciding on intervention
Step 1: Exercise for Exploring External Environment (3-E)
Step 2: Overlaying Organizational Mission and Competency
Step 3: Sub-sector Analysis
In the previous Stage of Identification Process, we short-listed a few potential livelihood
activities in our area. We may have gathered some information about these livelihood
opportunities at the local level by now.

But now the question is, can we take up all of these activities? Do we have the resources?
Remember, it is better to take up one or two activities and do them well, rather than spreading
our limited resources too thin by taking up too many activities.

Even within the selected activities, do we know what exactly to do? For example, if dairy
looks like a potential activity in our area to be taken up, what exactly do we do in dairy? Do
we work on providing veterinary services to producers? Or work on creating alternative
marketing channels? Or undertake advocacy to create an enabling policy? Which is the most
crucial bottleneck? Is it pro-poor? Does it have any health or other environmental hazard?

In this section, we will learn how to chose one-or-two activities to be taken up in our area and
identify the exact intervention to be made in the selected activity. This can be done in two
ways:
• Through an exercise to explore the elements of the external environment
• Overlaying the Organizational Context by examining the mission and assessing
competencies of the organization
• By doing a detailed sub-sector analysis, if required.

Step 1: The 3-E Exercise
We will now look at an exercise to Explore the External Environment, in short the 3-E
Exercise. This is an exercise designed to collect and consolidate information about various
elements of the external context (Demand Conditions, Factor Conditions, Industrial
Conditions and the Institutional Conditions)

3 E Exercise (Explore the External Environment)
Step. 1: Identify Key Informants
• Identify at least three key informants or players in every selected activity
o It is useful to choose people from different interest groups because they will help us build
different perspectives on the chosen livelihood activity
Step. 2: Develop Questionnaire/check list for Assessment
• Generate simple questions/check list which helps assess conditions of various factors,
which limit livelihood choices in the area. (A sample set of questions has been indicated
in the table below).
o Take care to formulate the question in such a way, that you get answers to the same
question from all the respondents
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Steps in 3E Exercise (Explore the External Environment)
Identify Key Informants
Develop Questionnaire for Assessment
Scoring by Key Informants
Aggregate Scores
Compare Scores of Different Activities
Identifying Bottlenecks
Identifying Interventions
1
2
3
4
5
6
7
Overlaying Organizational Competency 8

o For example: If your question was, “Is the raw material available?” The dairy farmer may
respond about the availability of fodder, while the dairy plant manager may respond about
availability of liquid milk. To avoid such a mix up, formulate the question precisely: “Is
adequate green fodder available?” or “Is adequate liquid milk available?’ depending upon
what you want information on.
Step .3: Scoring by Key Informants
• Ask different key informants to assess each of these parameters on a scale of 1-5, where 1
is highly unfavorable and 5 is highly favorable, individually
o Only the respondent should give the score and we should not prompt him in any way. If
necessary we can use some PRA methods to help them score, but evaluation should come
only from them.
o It is necessary to go to at least three Key Informants. If we have the time and the resources,
we can definitely seek views of more.
o Score the responses of the Key Informants in the columns and find out the average score on each
of the 25 parameters.
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Sample Checklist and Sample Score of 3-E Exercise
Examining External Environment of an Activity supporting Livelihoods
Activity/ Industry Dairy Interviewer
S.No Activity Key Informants Total Average
1 2 3
A Factor Conditions
1 Availability of raw materials 4 5 3 12 4.00
2 Availability of skilled human resources 3 2 3 8 2.67
3 Agro-climatic suitability 3 4 3 10 3.33
4 Availability of capital (credit/subsidy) 2 1 2 5 1.67
5 Availability of infrastructure
(power, water, roads, storage, etc.)
2 3 1 6 2.00
B Demand Conditions
6 Size of Domestic/Local Demand 3 4 3 10 3.33
7 Number of buyers (Large-5, Few-1) 4 4 5 13 4.33
8 Sophistication of Buying Process (with
transparent Quality/ Quantity Measurement)
4 4 3 11 3.67
9 Growth of Domestic Demand
(Increasing-5 or Declining-1)
2 3 2 7 2.33
10 Presence of External Buyers (Many -5, None -1) 2 4 2 8 2.67
C Industry Conditions
11 Number of firms (Use Many-5, Monopoly-1)
3 4 3 10 3.33
12 Existence of competition among firms
(Healthy 5, Unhealthy -1)
4 4 5 13 4.33
13 Possibilities of setting up new firm (No Barriers
-5, Barriers to Entry -1)
4 4 3 11 3.67
14 Presence of marketing agencies 2 3 2 7 2.33
15 The quality and reliability of input suppliers/
component and machinery suppliers
2 4 2 8 2.67
D Institutional Conditions
16 Presence of efficient promotional agencies
(Efficient -5, Inefficient/ Not Present -1)
2 2 3 7 2.33
17 Existence of functioning producer organizations 3 3 2 8 2.67
18 Availability of quality training institutions 4 4 3 11 3.67
19 Do people (can) have access to all physical/ legal
resources necessary for this activity?
4 5 4 13 4.33
20 Supporting/ favorable government policies 3 3 4 10 3.33

o Factors showing high scores, such as number of buyers, access to physical resources, are
favorable.
o Factors with low scores, such as availability of credit, needs attention.
o Factors where there are differences of opinion between the key informants (shown by high
variance), such as reliability of input supplier in the above case, need to be explored further.
Possibly this represents a communication gap or break in information flow.




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Step.4: Aggregate Scores
o Add up the scores given by different Key Informants on each element and find the average
score.
Examining External Environment of an Activity supporting Livelihoods
A Sample Sheet for 3-E Exercise used in Rajasthan
S.No Activity: Dairy Goat
Rearing
Stone
Cutting
Leath
er
Carpet
A Factor Conditions
1 Availability of raw materials
4.00 3.33 2.66 2.60 1.00
2 Availability of skilled human resources
2.67 3.33 3.66 3.00 2.00
3 Agro-climatic suitability
3.33 2.33 3.00 2.30 2.50
4 Availability of capital (credit/subsidy) 1.67 3.33 3.30 3.00 1.30
5 Availability of infrastructure
(power, water, roads, storage, etc.)
2.00 3.33 3.66 2.00 3.00
B Demand Conditions
6 Size of domestic/local demand 3.33 3.30 4.30 3.60 3.90
7 Number of buyers (Large-5, Few-1) 4.33 2.60 3.30 3.00 2.00
8 Sophistication of buying process (with
transparent quality/ quantity measurement)
3.67 3.00 4.00 3.30 4.00
9 Growth of domestic demand
(Increasing-5 or Declining-1)
2.33 2.00 2.30 2.60 3.00
10 Presence of external buyers
(Many -5, None -1)
2.67 3.00 3.00 3.00 1.75
C Industry Conditions
11 Number of firms (Use Many-5,
Monopoly-1)
3.33 2.67 4.30 2.30 3.00
12 Existence of competition among firms
(Healthy 5, Unhealthy -1)
4.33 3.33 4.00 4.00 4.00
13 Possibilities of setting up new firm (No
Barriers -5, Barriers to Entry -1)
3.67 3.30 3.66 3.00 4.00
14 Presence of marketing agencies 2.33 2.60 3.00 2.60 2.20
15 The quality and reliability of input
suppliers/ component and machinery
suppliers
2.67 2.60 3.30 3.00 3.90
D Institutional Conditions
16 Presence of efficient promotional agencies
(Efficient -5, Inefficient/ Not Present -1)
2.33 2.30 2.66 2.30 2.30
17 Existence of functioning producer
organizations
2.67 1.67 2.66 1.00 2.30
18 Availability of quality training institutions 3.67 1.33 3.00 1.30 1.30
19 Do people (can) have access to all
physical/ legal resources necessary for this
activity?
4.33 1.00 2.66 1.00 1.00
20 Supporting/ favorable government policies
3.33 2.67 2.00 2.00 1.00

62.67 53.02 64.42 50.90 49.45

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Step .5: Compare scores of different activities
o Place the scores obtained by different activities in column totals at the end of each column,
and work out the averages of the score in the rows.
o Examine the column totals. Compare and see which activities have got high scores. For
instance in the table above, stone cutting has got the highest score followed by dairy, goat
rearing, leather and carpet making.
o The activities, which have scored high totals, are likely to have had favorable conditions
for most of the elements. Poor people may find it easier to work in such a sector than the
one where many conditions are unfavorable.
Step .6: Identifying bottlenecks
• Now examine the row scores. The row that gets the lowest score indicates bottlenecks
• For example: In the stone cutting industry absence of appropriate organization of the
producers and availability of credit in dairy seems to be the critical bottlenecks.
Step .7: Identifying interventions
• Chose an intervention point which can help overcome a bottleneck in the activity, and
which suits your own internal context.
• For example, given that credit is a ruling bottleneck in spread of the dairy activities, you
may chose to extend credit yourself, or
One important element of the Internal Context; the people, we have already assessed in the
3E Exercise. We will now see how to assess the other important element of the Internal
Context; the Organizational Competency. We will use a simple methodology to do this as
mentioned below.
Stage 2: Overlaying organizational competency
The 3-E Exercise gives us a fair amount of information about some of the potential activities
in the area. Apart from the information, the dialogue with three key informants of these
activities is also a very enriching process. By completing this exercise, we become quite
familiar with:
• Some of the activities that can be taken up by the people in the area for their livelihoods;
• Factor and demand conditions for production of these activities present in the area; and
The major bottlenecks in taking up this activity.
• We now need to choose the exact intervention that we need to start with. We can also plan
for some interventions that we could take up later, and prioritize/ sequence them. This
choice needs to be made on the basis of the capacity of the organization that will have to
make the intervention.
• It is important for us to recognize that livelihood intervention is a complex task. Therefore,
we need not have all competencies within the organization for us to say that the
organization has the competency. There could be different stages of competency of the
organization.
• It already has the competency
• It can build the competency within the existing people in the organization.
• It can choose to collaborate with some other organization, which has the competency.
• It can hire in new people and build the competency.
• Required competency may not be available at all.

Similar analysis is also applicable for not only the human resources of the organization, but
also on financial resources, infrastructure and so on. In these cases also we need to ask:
• Do we have to resource (which in turn will make the organization capable) within the
organization?
S.Rengasamy- Tools & Techniques for Analyzing Livelihoods & Making Effective Intervention

26

• Is there some other organization we can collaborate with who can bring in the resource and
so on …..

This process of analyzing organizational competency involves two steps.
Step 2.1: Identifying intervention that can help overcome bottlenecks
Step 2.2: Assess whether the organization has the competence required for the task or can
acquire such competency in collaboration with some other agency.
Step 2.1: Identifying intervention that can help overcome bottlenecks
Identifying the specific interventions that can help overcome a bottleneck identified through
the 3-E Exercise is a creative task. For this we need to consult a variety of stakeholders, look
at efforts done by other organizations. Many suggestions would have come during the
interaction with the key informants during the 3-E Exercise. We need to consolidate these
ideas.

For example, in the dairy intervention in the above case, if credit is a major bottleneck
identified, we could choose from the following:
• Making credit available through our organization’s micro-finance activities
• Making credit available by collaborating with one of the micro-finance agencies working
in the area
• Making credit available by promoting a new people-owned micro-finance agency in the
area
• Making finances available by linking the producers with banks in the area.

The first step is to generate all these ideas. We could use any of the brainstorming processes
for generating such a list.
Step 2.2: Assess Organization’s Competence
Having generated the list of possible interventions, we need to check for ourselves, if the
organization has the competence and the mandate to take up that intervention.
The following Table-6 to facilitate this analysis.

S.N Interventions Human
Resources
Financial
Resources
Infra-
structure
Total
1 Through our organization’s micro-
finance activities

2 In collaborating with one of the
micro-finance agencies working in
the area

3 Promoting a new people-owned
micro-finance agency in the area

4 Linking the producers with banks
in the area


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Listen to your heart as well …
In the workshop held on the campus of the NGO, Gram Vikas in Orissa
state, the participants looked at the livelihood opportunities in marine
fishery in the surrounding area. They realized that fish production in the
nearby coast was exploited to the full, and could not support more
livelihoods. With trawlers coming in from neighboring states and scraping
the bottom of the continental shelf, catch for the local fisherman was
dwindling. The total number of people who were involved in fisheries in the
area of operation of Gram Vikas was about 10,000, which was too small a
number to influence the policies of neighboring states. It was suggested
that Gram Vikas keep away, as there was little it could do to change the
situation. Also, the critical leverage point lay beyond the capacity of Gram
Vikas to intervene.
The challenge before Gram Vikas was: ‘what happens to those 10,000
people, who have never done anything other than fishing? As the ‘best’
point of intervention, as shown by this analysis, was not ‘feasible’, do they
go hungry?’
Gram Vikas continued working with the fishermen


Let us remember that, the
mission of the
organization influences
these choices. If the
mission of the
organization is to extend
‘any services necessary
for supporting
livelihoods’ we could
explore all the choices
above. But if the mission
is ‘to extend any non-
financial services
necessary for supporting
livelihoods’, the choice
will be limited to options
2 and 4 above.
Use a scale of 1 to 5 to assess
the competence of the
organization, where 5 is
competence available for use
within the organization, 1 is
where it will be extremely
difficult to mobilize this even
from the organizations known to
us.

This level of analysis is often
good enough for us to start the
livelihood intervention process.
However, in case we are
planning a large intervention,
and would like to be much more
accurate, we need to equip
ourselves about the locational
advantages of any activity,
viability and threshold for a
particular activity, the backward and forward
linkages and the external and internal economies
of a particular activity. For large scale livelihood
intervention it is suggested to carry out sub sector
/value chain analysis.


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Different levels of livelihood profiles and its uses
Tool What it is How it helps
L
i
v
e
l
i
h
o
o
d

Z
o
n
e

M
a
p

A map of areas within which
people share broadly the same
patterns of livelihood
• Understand how people in an area will be affected
by different hazards (drought, market failure,
floods, etc.)
• Design a livelihoods-based sampling frame for
assessments
• Target assistance geographically
• Customize indicators for livelihoods monitoring
systems
L
i
v
e
l
i
h
o
o
d

P
r
o
f
i
l
e
s

A snap shot of the livelihood
options (food and cash sources) of
different households (poor, middle,
rich) in the livelihood zone and the
hazards to which households are
vulnerable
All of the above plus...
• Understand how different household types (poor,
middle, rich) will be affected by different hazards
• Design a seasonally-specific monitoring system for
more precise and efficient results
• Help interpret trends in monitoring information by
season and household type
L
i
v
e
l
i
h
o
o
d

B
a
s
e
l
i
n
e
s
A detailed quantified breakdown of
household livelihood options (food,
cash, and expenditure patterns)
for different wealth groups in the
livelihood zone, highlighting
market linkages, and constraints
on/opportunities for economic
growth.
All of the above plus...
• Predict whether people will be able to meet their
basic survival requirements and/or protect their
livelihoods in the short, medium and longer term
• Provide essential information for guiding policy and
program decisions in areas such as social
protection, agricultural policy, service/needs
provision, development planning, market program
design, etc.

L
o
c
a
l

L
i
v
e
l
i
h
o
o
d
s

Baseline Assessment A detailed analysis of local
livelihoods to answer a specific set of decision-maker
questions related to any number of areas, including but
not limited to:
• conflict and livelihoods;
• local economic growth opportunities;
• market-based livelihoods programming;
• labor markets and livelihoods;
• health and food security;
• HIV/AIDS and livelihoods; etc.
• Determine how to best support
and help expand people’s
livelihoods
• Avoid unintended consequences
of poorly designed policies or
programs
• Identify synergies between local
livelihood growth opportunities,
government priorities, and
decision-maker initiatives

Stages in
livelihood
promotion
Tool or technique focuses on
Pre or Beginning conversing, discussing, researching, learning, sharing
1 Assess benchmarking, brainstorming, measuring, researching, analyzing, evaluating
2 Focus planning, prioritizing, deciding, focusing, resolving
3 Act doing, completing, moving, carrying out, implementing
The Process – the
flow
Guiding, steering, leading, facilitating, presenting, communicating,
disseminating—these are techniques that can help steer or guide a
community through a process. These “Processes” provide the necessary
lubricant that allows things to happen and often link the Beginning-Assess-
Focus-Act steps.



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Information to be collected, tools used in relation to livelihood themes
L
i
v
e
l
i
h
o
o
d

s
t
r
a
t
e
g
i
e
s

(
p
r
o
d
u
c
t
i
o
n
,

p
r
o
c
e
s
s
i
n
g
,

e
x
c
h
a
n
g
e

&

i
n
c
o
m
e

g
e
n
e
r
a
t
i
n
g

a
c
t
i
v
i
t
i
e
s
)
Type of activities undertaken by
each household member, level of
contribution to household
economy; coping strategies;
access to employment; income
generating activities; access to
credit; contribution of
remittances to household
livelihood
H
o
u
s
e
h
o
l
d

i
n
t
e
r
v
i
e
w
s

Economy
activity
analysis;
livelihood
profile;
key
informant
interviews
Distribution of poverty
within households;
remittances; pension;
gender; food security and
agriculture; economic
activities; household
economy; access to
finance; time allocation
Livelihood
Component
What we need to know
P
r
i
n
c
i
p
l
e

t
o
o
l


Other tools
(triangulatio
n; cross-
checking)
Consultation Group
Theme
L
i
v
e
l
i
h
o
o
d

c
o
n
t
e
x
t

I
n
s
t
i
t
u
t
i
o
n
s

Presence and importance of community
level institutions; interaction of population
with external institutions; control of
resources by institutions
V
e
n
n

d
i
a
g
r
a
m

Household
interviews;
focus group
discussions;
key
informants
Institutions at the
community or
neighborhood level;
attitude towards new
institutions;
participation
N
a
t
u
r
a
l

R
e
s
o
u
r
c
e
s

Food economy zone; presence of
common property resources; availability
and access to natural resources; access
to land
A
r
e
a


M
a
p
p
i
n
g

Secondary
data; key
informants
Land holding
I
n
f
r
a
s
t
r
u
c
t
u
r
e

Availability of education, health, social
services; water and sanitation
infrastructure, roads and transport
infrastructure
A
r
e
a

m
a
p
p
i
n
g
Venn diagram
h.h.
interviews;
secondary
data
Water and sanitation
facilities; education;
health
C
u
l
t
u
r
a
l

e
n
v
i
r
o
n
m
e
n
t

Ethnicity; religion and gender
S
e
c
o
n
d
a
r
y

d
a
t
a
;


Livelihood
profile;
h.h.
interviews;
FGD
Participation; social
isolation; social
capital; pension;
gender
P
o
l
i
t
i
c
a
l

e
n
v
i
r
o
n
m
e
n
t

Broader political context in Kosovo;
Political parties at community level;
access to voting; feelings of
insecurity/uncertainty at household and
community level
S
e
c
o
n
d
a
r
y

d
a
t
a

Venn
diagram;
household
interview; key
informants
Physical isolation;
participation; attitude
towards new
institutions;
R
e
s
e
t
t
l
e
m
e
n
t

p
a
t
t
e
r
n
s

Number and dates of migration and
resettlement; perceptions of security and
risk; presence of landmines
K
e
y

i
n
f
o
r
m
a
n
t

i
n
t
e
r
v
i
e
w

Mapping; h.h.
interview

Processes
(rules,
regulations,
etc.)
Impact of rules, regulations and
policies on households and
communities; potential impact
of taxation; access to passports;
impact of judicial processes
V
e
n
n

d
i
a
g
r
a
m

Secondary
data;
household
interviews; key
informants
Perception of new
institutions;
institutions at
community level;
participation
S.Rengasamy- Tools & Techniques for Analyzing Livelihoods & Making Effective Intervention

30

V
u
l
n
e
r
a
b
i
l
i
t
y

t
o

s
h
o
c
k
s

&

s
t
r
e
s
s
e
s

Pre-war condition of household;
coping strategy of household
during war; ability to recover
from war; time of return;
process of resettlement; current
status of household; barriers to
recovery; other stresses (e.g.
illness);
H
o
u
s
e
h
o
l
d

i
n
t
e
r
v
i
e
w
s

Economic
activity
analysis;
livelihood
profile;
key
informant
interviews
Shelter/housing;
distribution of poverty
within communities;
institutions at the
community level;
remittances; social capital;
economic activities;
household economy;
pension; gender; access to
finances


















H
o
u
s
e
h
o
l
d

A
s
s
e
t
s

(
w
h
a
t

t
h
e
y

a
r
e

a
n
d

h
o
w

t
h
e
y

a
r
e

u
s
e
d
;

i
n

p
a
r
t

d
e
t
e
r
m
i
n
e
s

h
o
u
s
e
h
o
l
d
s


a
b
i
l
i
t
y

t
o

r
e
c
o
v
e
r

f
r
o
m

s
t
r
e
s
s
e
s

a
n
d

s
h
o
c
k
s
)

S
o
c
i
a
l

Exchanges of goods and
services; assistance to or from
extended family networks;
membership in community
groups; nature of interactions
with other households
H
o
u
s
e
h
o
l
d

i
n
t
e
r
v
i
e
w

L
i
v
e
l
i
h
o
o
d

p
r
o
f
i
l
e

Social capital; remittances;
physical isolation; gender;
distribution of poverty within
communities; participation
P
h
y
s
i
c
a
l
Housing; agricultural
implements; vehicles;
machinery; shops; household
level water and sanitation
facilities
H
o
u
s
e
h
o
l
d

i
n
t
e
r
v
i
e
w

L
i
v
e
l
i
h
o
o
d

p
r
o
f
i
l
e

Household economy; shelter;
distribution of poverty within
communities; water and
sanitation; food security and
agriculture
H
u
m
a
n
Education level; ability to work;
dependency ratio
H
o
u
s
e
h
o
l
d

i
n
t
e
r
v
i
e
w

L
i
v
e
l
i
h
o
o
d

p
r
o
f
i
l
e

Education; health; gender;
household economy; time
allocation; participation; food
security and agriculture
F
i
n
a
n
c
i
a
l
Livestock; savings; remittances;
access to credit
H
o
u
s
e
h
o
l
d

i
n
t
e
r
v
i
e
w

L
i
v
e
l
i
h
o
o
d

p
r
o
f
i
l
e

Access to finance; household
economy; remittances;
distribution of poverty within
communities; pension; food
security and agriculture
N
a
t
u
r
a
l

Land; access to common
property resources
H
o
u
s
e
h
o
l
d

i
n
t
e
r
v
i
e
w

L
i
v
e
l
i
h
o
o
d

p
r
o
f
i
l
e

distribution of poverty within
communities; land holding;
household economy; food
security and agriculture
S.Rengasamy- Tools & Techniques for Analyzing Livelihoods & Making Effective Intervention

31


Threshold -- the minimum
market needed to bring a
firm or city selling goods
and services into existence
and to keep it in business
Range -- the average
maximum distance people
will travel to purchase
goods and services
Viability, Range of Goods, Clustering, Internal & External
Economies, Backward & Forward Linkages.

The importance of location in livelihood promotion / intervention
Location of a place is important to make certain livelihood intervention. Livelihood
diversification is easy if the location is a central place or nearest to a central place. The
centrality of a settlement (urban centre) is defined as the ratio between the services provided
and the local needs of its inhabitants. The increasing or decreasing centrality of a place
depends on the extent to which it functions for the surrounding region. Christaller, who used
this term in his central place theory give a simple mathematical explanation. If the
settlement (town) has an aggregate importance of B, of which Bz represents the town’s
population, then B – Bz = the surplus of importance for the surrounding region, and it is this,
the magnitude of the surplus, that shows the degree to which the town is a central place. How
is it possible to measure the centrally of a place and its importance as such?

Christaller stated that centrality “is equal to the relative importance of the place in regard
to a region belonging to it”. He suggested that the best method of determining the
importance of a place as a centre is, not by the size of the population, but by the number of
central functions performed by it. (More number of telephone connections is an indicator to
measure the centrality of a place).
Professor Edward Ullman suggested
some, such as “the average number of
customers required to support certain
specialized functions in various
regions,” and, “the excess of these
functions over the normal requirement
of the settlement (urban) population.’ Another suggestion is the number of automobiles
entering a town excluding those from the suburbs.

Viability & Threshold
Viability means capable of normal growth and development; capable of become practical and
useful; Capability of developing and surviving as a relatively independent social, economic
or political unit.
Threshold is the minimum sales volume needed to support a business or service; below this
level it will not be profitable to supply a good or a service
When a particular activity is selected for livelihood intervention on should ask the question
whether the activity is viable i.e whether it has the capacity for normal growth &
development. For an activity to be viable, there need to be a threshold of population to
support it.
Range of a Central Good/Service
Range of a central good/service
delineates the market area of a central
good/service. It is the maximum
distance that consumers are willing to
travel (Keeping in view the price of
the good) to purchase the good. It we
assume that travel is equally easy in
all directions, the range of a central
good will be a perfect circle round the
central place.
Other indicators of a central place
- business turnovers of the shops
- number of central functions such as whole sale
and retail stores
- professional services located in a settlement
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Leading propulsive industry and innovative firms are some of the concepts that the
livelihood promoters are expected to be familiar with. These industries /firms
generate certain advantages and economies. Our effort will be made easy if we are
able to integrate our activities with it. Advantages of such industry/ firms
highly advanced level of technology and managerial expertise
high income elasticity of demand for its products
marked local multiplier effects and
strong inter-industry linkages with other sectors

Linkages are of two types.
Backward linkage:
An industry encourages investments in the earlier stages of production by expanding its
demand for inputs (which are the outputs of industries in the earlier stages of production
(e.g. Sugar Industry)
Forward linkage:
An industry encourages subsequent stages of production either by transmitting
innovations or effects of innovations forward. (E.g. Automobile industry)

































Sugar
Industry
Backward Linkages
Cane Cultivation
Irrigation & Electricity
Irrigation & Electricity
Fertilizer & Pesticide
Credit to farmers
Transport
Ext Education
Quality seedlings
Labour
Tractor
Forward linkages
Drivers
Diesel
Trailers Automobile spares
Mechanics
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Clustering
(Business) Clustering is a geographic concentration of interconnected businesses, suppliers,
and associated institutions in a particular field. Clusters are considered to increase the productivity
with which companies can compete, nationally and globally. In urban study, the term
agglomeration is used.
The term economy of agglomeration is used in urban economics to describe the benefits that
firms obtain when locating near each other. This concept relates to the idea of economies of scale
and network effects. Simply put, as more firms in related industries cluster together, costs of
production may decline significantly (firms have competing multiple suppliers, greater
specialization and division of labor result). Even when multiple firms in the same sector
(competitors) cluster, there may be advantages because that cluster attracts more suppliers and
customers than a single firm could alone. Cities form and grow to exploit economies of
agglomeration.
There are of course also diseconomies of agglomeration. Additional competition drives down
pricing power. Large cities attract problems of crowding and congestion. It is this tension between
economies and diseconomies that allows cities to grow, but keeps them from becoming too large.
Perroux’s Growth Pole Hypothesis.
Perroux based his theory on two cornerstones
1. Schumpeterian theory of development
(I.e. Growth does not appear everywhere and all at once; it appears in points or development
poles with variable intensities; it spread along diverse channels and with varying terminal effects
to the whole of the economy)
2. Theory of inter-industry linkages and industrial interdependence.
Based on this Perroux developed his idea of economic space as a field of forces consisting of
centers (or poles or foci) from which centrifugal forces (spread effects) emanate and to which
centripetal forces (backwash effects) are attracted.
Perroux’s defined a ‘growth pole’ as a set of expanding industries located in an urban
area and it includes further development of economic activity throughout its zone of
influence. The place where these ‘expanding’ or ‘propulsive’ or ‘dominant industries’
are located in the region becomes the poles of the region and agglomeration
tendencies are promoted. Such tendencies arise because of external economies and
result in polarization of economic activities around that pole. The external economies
that become available in the area constituting the growth pole of a region
How linkages are transmitted?
As a result of innovations, costs of production in the industry / activities will decline. This
could lead to a fall in the price of its output. If this happens, the demand for the industry’s
product /activity /service will increase. In addition to this possibility, there are many other
ways in which innovations or effects of innovations can be transmitted forward.

Some activities create strong backward linkages and some create strong forward linkages.
Some linkages may trickle down to the area where we are planning to make intervention.
Livelihood promoters should manipulate these linkages for the benefit of the target group

External economies are basically of three types.
1. Economies internal to the firm:
These are the lower average costs of production resulting from an increased rate of output.
These are the economies, which any single firm by its organization and effort can enjoy.
e.g. organizational efficiency and effectiveness
2. Economies external to the firm but internal to the industry.
These are associated with localization of industry on account of close locational proximity of
linked firms, as industry expands at a particular location, cost per unit of output to a firm
S.Rengasamy- Tools & Techniques for Analyzing Livelihoods & Making Effective Intervention

34



declines e.g., textile units at Coimbatore, match factories at Sivakasi
3. Economic external to the industry but internal to the urban area.
These can be termed urbanization economies. They include development of urban labour
market, access to a larger market, and provision of a wide range of services.












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Sub-sector Analysis

Why Sub-sector Analysis?
Micro and small-scale enterprises (MSEs) employ vast numbers of people throughout the
Third World. They provide a key source of income for the poor and for women. Yet MSEs
struggle to, survive in a highly competitive, fast changing business environment. Some
operate in rapidly growing markets while others are squeezed by changes in demand,
technology, labor costs, tariffs, input prices, government regulations, and competition from
large firms and imports.

In spite of their resourcefulness and savvy, small firms often lack political influence as well
as the vantage point from which to understand the overall competitive system in which they
operate. Field agencies can help by serving as advocates, monitoring and influencing change
for the benefit of MSEs. But to do so, field agencies need ways of identifying niches where
MSEs have a competitive advantage so that these agencies can assist those MSEs with the
greatest potential while avoiding investment in areas where they cannot effectively compete.
Subsector analysis offers a tool that can facilitate small-firm moves to promising technologies
and market niches.

Normally, a subsector is delineated by a particular final product and includes all firms
engaged in raw material supply, production and distribution of that product. In some cases,
however, the defining characteristic is a key raw material, with the subsector describing
alternative transformations and distribution systems emanating from it. The hides and skins,
cotton, and citrus subsectors are examples of this second type. They are common in the
literature on agricultural economics marketing,
where they are known as commodity subsectors.
Many of the analytical tools used in subsector
analysis come from these early subsector studies
on agricultural commodities.

Promoting individual enterprises to enhance the
livelihood among the poor people in an isolated
and sporadic way may not be the most effective
way to enhance their livelihoods.
An enterprise is not an isolated structure. It is
organically connected horizontally and vertically with other enterprises and activities. Our
effort may go waste if there are fault lines in the relationship. Enterprises can be established
easily but to sustain it and upscale it, one need to understand the large picture. There are
several tools and techniques are used to understand this picture. 3E exercise is one such a
tool. Sub sector analysis or Value chain analysis is an another important tool that helps us to
The 3-E Exercise helps us identify some of the
ruling bottlenecks that need to be overcome to
support livelihoods of many people in the area.
Step. 1: Identify Key Informants
Step. 2: Develop Questionnaire/check list for
Assessment
Step .3: Scoring by Key Informants
Step.4: Aggregate Scores
Step .5: Compare Scores of Different Activities
Step .6: Identifying Bottlenecks
Step .7: Identifying Interventions
"Once upon a time, we knew the origins of things: what piece of earth the rice on our
dinner plate came from, which well our water was dipped from, who cobbled our foot
wears, and whose cow provided the milk and leather. In many parts of the world, that
information is still readily available. But in the present day society, even as technology
makes certain kinds of information more accessible than ever, other connections are
irrevocably lost."
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understand more about the economic system, the whole value addition chain and various
players in it. It helps us
to determine the most cost-effective intervention to achieve the livelihood outcomes that we
seek in our area.
Sub sector Model





































N
A
T
I
O
N
A
L
S
E
C
T
O
Meta Level
Macro Level
Meso Level
Micro Level
Raw
Material
Traders
Preliminary
Producers
Small Scale
Producer
Large Scale
& or Multi
Plant
Small Scale
Producer
Traders or
Export
Local
Markets
Specialized
Buyers
Buyers /
Import
Trans National
Company
Large Scale
Multi outlet
Trader
End Consumer
G
L
0
B
A
L
E
C
O
N
O
M
y
National
Small Scale
Retailer
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Elements of Subsector Analysis
1) Understanding Product Markets and Market Trends
2) Relationships between Participants
– describes functions, participants, and relationships
among participants
3) Identification of Constraints and Opportunities
– including: technology, market access, organization,
policy, finance, input supply, etc.
4) Subsector mapping
– graphic presentation of inter-relationships;
– can help to identify participants to interview


What is a Subsector?
• "The vertical set of activities in the production and distribution of a closely related set of
commodities." Shaffer, 1968.
• A sub-sector is a network of farms and/or firms that supply raw materials, transform them,
and distribute finished goods to a particular consumer market or markets.
• Any group of commodities, which share a common procurement, processing and
distribution channel, can be clubbed into a sub-sector.
• There is more to a sub-sector than just the core manufacturing process such as rice-milling.
The rice transportation system is as much a part of the paddy sub-sector as rice-milling or
trading is.
• A sub-sector is not within a geographical confine. If the groundnut for manufacture of the
Chiki (Kadalai Mittai - sweetmeat) sub-sector in Lonavala comes from Saurastra, then the
groundnut market in Rajkot (Saurastra) is very much a part of the Chiki sub-sector, that
needs to be studied.
• "An interdependent array of organizations, resources, laws, and institutions involved in
producing, processing and distributing an agricultural commodity." Marion et al., 1986.
• Thus , one can view the subsector as:
• A set of activities and a related set of rules
governing those activities.
• A conceptual way view of a problem.
• Vertical view of industrial organization.
Nothing highly complicated about the
approach. Just a vertical way of looking at.
Explanation:
– range of activities required to bring a product
or service to the final consumer
– includes producers, processors, input suppliers, exporters, retailers, etc.
– includes both vertical and horizontal linkages
– can be defined by a particular finished product or service
• e.g. wood furniture, green beans for export, etc.
** the same definition can be applied to Value Chains
What is sub-sector analysis?
Sub-sector analysis is a process of
getting to understand different stages in
the value addition chain in a sub-sector
and understanding who does the value
addition, using what technology, at what
terms and with whose help.
There are FOUR steps involved in
undertaking sub-sector analysis.
1. Preparing a preliminary sub-sector
map,
2. Refining your understanding of the sub-sector,
3. Analyzing sub-sector dynamics and leverage points
4. Choosing your intervention point.
Value Chain / Sub Sector Analysis can
help to…
• Reveal links between producers, exporters
and global markets
• Identify constraints all along the chain to
competing in the marketplace
• Clarify the relationships in the chain from
buyers to producers
• Highlight the distribution of benefits
among buyers, exporters and producers
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Steps in Sub Sector Analysis


























By using subsector analysis one can put the potential livelihood opportunities identified to a
rigorous test. Subsector analysis clarify whether the activities identified are likely to grow and
significantly benefit a large number of poor people, or are they going to remain a stagnant
activity bringing only marginal benefits to the target group?
Step 1: Preparing a preliminary sub-sector map
There are three action points that are required to prepare preliminary sub-sector map. These
are:
a. getting to know the sub-sector
b.interviewing key informants
c. drawing a preliminary sub-sector map

A: Getting to know the sub-sector
The first thing is to know about a sub-sector in order to identify the whole value-addition
process. So it is better to get as much information about that sector:
1. What are the basic raw materials?
2. Where do the people get them?
3. What is it that they produce?
4. What happens to it: who buys it? What does s/he do with it?
5. Is there some processing? Is there more than one way in which it is processes?
6. What are the one or more final markets for the product?
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SUBSECTOR MAP - GREEN BEANS FOR EXPORT

The above questions can be applied to potential livelihood opportunities in services as well as
in manufacturing.

The answers for the checklist mentioned above can be collected by talking to people who are
involved in the business. They could be farmers or producers, traders who deal in the
commodity, product or service, bankers who finance the activity, a government officer










Supply of input factors
Raw materials, labour force,
machines ,capital, preliminary
products, services, Knowledge
Transformation to a product or
service
Combination of input factors
with production factors (labour,
capital & land
Sale to a buyer
To a local markets, global
buyers as finished, preliminary
products or raw material

Consumer
Three stages of an enterprise value chain
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responsible for supporting or regulating the activity, or even a professor in the local college.
Books, articles, websites can be of great help to clarify our self an\bout the activities we are
interested in.

It is better to familiarize with:
• Participants in the sub-sector: producers (both women and men), traders, regulators,
financiers, promotional agents
• Alternate technologies being used (e.g. in sugarcane: gur, khandsari, sugar mills, or in
cloth production: khadi handloom power looms) and the environmental impact of any
production processes.
• Factor conditions: The nature of the various factor conditions, as well as support
services, that the business will require to become an important livelihood activity in your
area.
• Product flows: Physical flows (places) and control of flows (traders, regulators)
• History: The ups and downs of the sub-sector and the causes of these.

GREEN BEANS FOR EXPORT: CONSTRAINT AND BUSINESS SERVICE IDENTIFICATION
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A value chain is a sequence of target-oriented combinations of production factors that
create a marketable product or service from its conception to the final consumption. This
includes activities such as design, production, marketing, distribution and support services to the
final consumer. The activities that comprise a value chain can be contained within a single firm or
divided among different firms, as well as within a single geographical location or spread over wider
areas.

The term Value Chain refers to the fact that value is added to preliminary products through
the combination with other resources (for example tools, manpower, knowledge and skills,
other raw materials or preliminary products).As the product passes through several stages of the
value chain, the value of the product increases. A value chain can be very short, like in the case of
milk, or very long and very complex in the case of passenger cars or houses.

For example wood furniture: Every wooden table starts as a tree; it is cut down in the forest and
processed to boards in sawmills. Traders then would sell these boards to furniture producers or
carpenters, who would use their skills to make a table from the boards. Some furniture producers
would sell the table to a local market, whereas others would sell it to traders or export agents.
Large retailers,

Every single enterprise has its own value chain. You could, however, think of a value chain
as consisting of levels with several enterprises at each level. For example the Central Java
(Indonesia) wood furniture industry: here you would find several small furniture producers selling
their products either to local markets, or to traders that would export them to large retailers. You
could even think of a whole national sector as including several levels of a global value chain. In
Central Java you would not only find furniture producers, but also raw material suppliers and
export agents. It is therefore important to distinguish between value chains that feed into
local markets (an end there) and global value chains.
What Does Value Chain Analysis Entail?
In identifying opportunities for upgrading and the constraints to these opportunities, the analysis
should focus on answering the following questions:
• What and where are the market opportunities? (End market analysis)
• What upgrading is needed to exploit them? (End market and chain analysis)
• Who will benefit from this upgrading? (Chain analysis)
• Who has the resources, skills and incentives to drive upgrading? (Chain analysis)
• Why has it not happened already? (Chain analysis)
• What will it take to make it happen? (End market and chain analysis)
B: Interviewing key informants
After gaining an initial understanding of the sub-sector, one needs to approach key
informants, i.e. those who are knowledgeable in order to gain deeper understanding.

The key informants for analyzing a sub-sector in greater depth may include:
• Smaller and larger producers
• Market traders or authorities
• Bankers
• Officials from promotional and regulatory bodies
• NGOs specializing in the sub-sector
• Researchers

During the interviews, ask at least the following seven questions:
1. Where do you get your raw materials
2. To whom do you sell your output?
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Sectors, Clusters, Networks – Upgrade What?
Many upgrading activities will target groups of enterprises rather than individual enterprises. The
reason for this is to initiate overall economic and social development, instead of favoring individual
enterprises. Furthermore, development agencies and employer and worker organizations that are
engaged in upgrading, are obliged to consider the interests of all their stakeholders and members.
It is therefore important to consider the scale of upgrading activities.
Economic activities are often categorized into sectors. We often talk about the private
sector vs. public sector, service sector vs. manufacturing sector, primary sector/ secondary sector/
tertiary sector. Within and across these different divisions we find sectors such as the consumer
goods sector, the technology sector and the financial sector, etc.
Economic activities that share common characteristics in product, process and/or
function compose an economic sector. Sectors often contain several levels of a global value
chain and consist not only of one, but several national and international chains. This means
thatfurniture producers would not only sell to local markets but also export goods to large retailers
in Europe, South East Asia and the USA – thus, we would basically have to deal with four value
chains.
Sectors are seen as a concept that includes different forms of economic interaction
between enterprises: the economic activities may be geographically concentrated in so-called
clusters, dispersed within or across national boundaries or appear as more flexible business
networks. The type of sector determines the scale of upgrading activities.
National sectors can either occupy parts of a global value chain or constitute an own
full value chain, in which products are produced or services are provided from the very
beginning to the final consumption. In the latter case, the sector would be producing for local
markets. The guide however focuses on the integration of sectors into global value chains. It will
therefore distinguish between “value chains” and “global value chains”.
Value Chain Governance
Dealing with value chains requires an understanding of how the value chains are organized
(or coordinated) and in particular, who has the say in the chain (power relations). This
is what is meant when referring to value chain governance. Value chains display a variety of
different “governance structures”, and the recognition of different forms of governance in global
value chains has important implications for the question of upgrading, that is to say, how
enterprises can move into higher value added activities.
3. What technology do you use, what alternatives exist, and why do you use this one?
4. What are the main regulations/ laws you have to follow?
5. What are your main sources of funds for working capital and fixed assets?
6. Which are the main agencies/ actors who help you? How?
7. What problems do you face, if any?


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C. Draw a preliminary sub-sector map
Based on the interactions with the various informants, a preliminary map of the sub-sector
can be drawn. The sub-sector map summarizes the initial understanding of the sub-sector
structure. Although conceptually simple, the map is a powerful tool for describing about a set
of related business activities. It identifies the sub-sector’s principle functions, participants and
channels. In preparing the map, it is useful to review the elements in an orderly manner
starting with production to end consumption. The orderly arrangement of the functions
describes the transformations of the commodity, product or service that take place. The
participants indicate who performs them. And the channels describe how products flow
among participants, who buys from whom, and how the network hands together.

List the functions
List participants performing each function
For each function identify alternative technologies and quality differences
Identify final markets
On a blank piece of paper, list all functions one above the other on the left side starting with
the base raw material at the lowest corner
List all final markets across the top
Map various participants who perform these functions in the rows where the functions are
listed.
Draw arrows to describe product flows among participants
Define principal channels
Review sub-sector boundaries

The following diagram illustrates sub-sector mapping conventions. Review these. The
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conventions or format is important and ignoring it often produces unclear sub-sector maps
that may confuse the participants and others.

Step 2: Refining the understanding of the sub-sector
There are four action points that are involved in this step of the sub-sector analysis. These
are:
a. Specifying the institutional context
b. Specifying the environmental context
c. Refining the sub-sector map
d. Quantifying’ overlays’ of particular interest

These action points can be undertaken in an iterative manner, i.e. meeting again with key
informants, such as producers, traders bankers, regulatory, promotional and other officials, as
well as drawing on secondary date. With the help of the key informants one can cross check
the accuracy of the information collected in the earlier stages.

























Specify the institutional context
The institutional factors that impact on the participants within the sub-sector into four broad
categories: regulation, promotion, credit and other institutional factors such as producer
organizations. Some of the issues that need to be covered is given below

Other
Institutions
Unions
Religious
Brotherhood
Ministries
National Forest
Dept
Forest Villages
Regional Forest
Service
Elected Regional
Council
Local Forest
Service
Local Rural
Council
Cooperatives
Merchants
Patrons
Migrant
WoodCutters

Transporters
Wholesalers
Retailers
Urban Population
Wood & Charcoal
Loan
Market regulation
Unofficial
Map of Social Relations of Access in Senegals Charcoal Market
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A: 1 Regulation
a) Identify the main laws and rules (including taxes) that apply to different stages in the
sub-sector.
b) Identify the main agencies responsible for enforcing the above.
c) Check the actual application of the law vs. the rules as laid down.
d) Ask key informants about what are the most bothersome aspects of regulation.
A: 2 Promotion
a) Identify the main promotional policies of the government relevant to the sub-sector.
b) Identify the main agencies responsible for implementing those policies.
c) Check actual implementation against policies on paper.
d) Ask key informants about how useful or not these policies are, and what are their most
helpful aspects.
A: 3 Credit
a) Identify the credit available to the sub-sector: what for how much?
b) Identify the main sources of credit (banks – commercial, regional rural banks –money-
lenders, etc)
c) Which parts of the sub-sector are most constrained by the lack of appropriate credit?
A: 4. Other institutional factors
a) Are there any producer organizations?
b) Are there any other institutions that affect the sub-sector?
c) Is there a political economy that significantly influences the sub-sector?

B. Specify the environmental context
Examine the environmental context within which this sub-sector functions. Examine how the
activities that take place within the sub-sector influence and are influenced by their
environment. For example,
Do activities within the sub-sector have environmental impacts? What are these? Are they
positive or negative?
a) Are various conditions of the environment favorable for taking up the selected activities?
b) Could more environmentally friendly practices be introduced within the sub-sector? How
easy or difficult would this be in practice?
c) Are investments required for processes to become more environmentally friendly?
How much? Who will make those investments?
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What does “Upgrading” mean?
By upgrading we mean a multi-dimensional process that aims at increasing the
economic competitiveness of enterprises as well as having a positive impact on social
development. In the case of sectors, multi-dimension means not only to consider the enterprise
level (micro-level), but also the economic, social and political business environment in which
enterprises operate. Upgrading can also be seen as a broader concept than innovation. Innovation
mainly takes place on the enterprise level, and concerns upgrading in product, process and
function. The preconditions for innovation are however set by the business environment.

It is also important to view upgrading as a continuous process and to consider this in any
upgrading
1. Product Upgrading: Developing new products/services or introducing a new quality. New
products usually have a higher value than their predecessor models. Examples: Increasing the
quality of timber wood for furniture, sourcing from another supplier, or adopting the design of
clothing to the preferences of the final customer.
2. Process Upgrading: Improving the efficiency of internal processes, such that these are
significantly better than those of competitors. Examples: Cutting the cost of inventories, lowering
scrap, improving delivery time, producing more in less time to less cost.
3. Function Upgrading: Moving up the value chain towards carrying out higher level and greater
value adding activities. Examples: Developing own capabilities for manufacturing chocolate instead
of only exporting the raw material; building up own design capabilities instead of only assembling
products according to given designs and plans.
4. Market Upgrading: Covering new markets on which to sell a product or service, whether this
market has to be newly created or is already covered by competitors.
5. Supply Upgrading: Improving the quality/quantity of supply material and products or
changing the supplier. This is very related to process upgrading. However, supply could be a
distinct focus of a sector-upgrading project. Example: ensuring that timber for wood furniture is
sourced from sustainable and environment-friendly wood processing areas.
6. Inter-chain Upgrading: moving to a new and more profitable value chain, where higher
rents can be captured. Example: Taiwanese firms moved from the manufacture of transistor radios
to calculators, to TVs, to computer monitors and now to Wireless Application Protocol Phones
(WAP).
7. Intra-chain Upgrading: Increasing cooperation and the flow of information between partners
along the value chain. This is done to achieve collective gains through quality improvements,
increased system efficiency and the development of differentiated products. This would also imply
a change in the value chain governance: From market-based to increasingly regulated
relationships that are based on trust and mutual (formal) agreements.

C. Refine the sub-sector map
After doing all the above said exercises one will become familiar with many participants,
processes and channels within the sub-sector and also aware of the institutions that are
influencing the sub-sector, and of some factors that can help minimize adverse environmental
impacts. This is a good time to check:

What are the important processes missed so far within the sub-sector?
Is there any new channel that was not aware of earlier?
Is there any additional functions that need to be performed for the commodity, product or
service to reach its ultimate markets?
Is there any functions identified in the preliminary map have turned out to be no more than
side shows for the main channels within the sub-sector?
With all this additional information the sub-sector map may be refined. A major part of
refining the map is to add ‘overlays’(super imposing).
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D. Quantify overlays of particular interest
It is important not only to have map of the sub-sector, but also some idea of the scale of
activity at each point of the sub-sector. It is called as overlays (super imposing). For example,
the sub-sector map prepared already can be superimposed with a clean transparency and add
figures for the livelihoods generated at each point represented in the map.
Small
Farmers
Large
Farmers
Village
Traders
Local
Traders
Cooperative
Traders
Private
Millers
Cooperative
Millers
Animal Feed
Industry
Noodle
Industry
Wholesalers
White Rice
Wholesalers
Broken Rice
Wholesalers
Dry Noodles
Retailers
White Rice
Retailers
Broken Rice
Exporters
White Rice
Exporters
Broken Rice
Retailers
Dry Noodles
Human
Consumption
Rice Chain in Thailand
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If a particular plant disease is common in an area, two
types of interventions may be possible:
Identify the right control measures and train farmers in
their use
Work with plant breeders and introduce a disease-
resistant variety.
With the second intervention you may be able to
benefit a larger number of people, and perhaps
with less effort.

We need to identify the overlays that are of interest to us and then quantify them. These may
include:
• Number of enterprises at each level
• Employment and livelihoods generated at each level
• Gender division of employment
• Volume of product
• Sales value
• Price margins at each level
• Income to different layers
• Returns to labor
• Inventory holdings
• Environmental impacts

In the process of quantifying this range of overlays, using information from key informants
and secondary data, will significantly deepen our understanding of the sub-sector.

Step 3: Analyzing sub-sector dynamics and leverage points
A sub-sector is not a static phenomenon. Demand patterns in the markets are changing. New
technologies are being
developed. New players are
entering the field. Some are
getting out. It is important for
you to understand these
dynamics before you make an
intervention.

It is also important to be cost
effective in an intervention. By
looking at the sub-sector map, it is possible to identify the various points at which
interventions can be made. But there are some points of intervention which can benefit a
larger number of people with the same amount of effort. It is always useful to identify such
points of intervention, which give high leverage.

This step further involves two action points:
a) analyzing the dynamics of the sub-sectors and,
b) identifying sources of leverage

A. Analyze the dynamics of the sub-sector
This step is vital for moving from analysis to action. By understanding how the sub-sector is
changing, one can understand where the opportunities and pitfalls lie. Further understanding
of the forces driving this change often reveals the key opportunities for growth in enterprise
and livelihoods.

In analyzing sub-sector dynamics the following questions will arise and which need to be
answered:
a) Which channels enjoy the most secure prospects for growth?
b) Do these channels face any emerging threats?
c) What role can micro and small enterprises play in these channels?
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d) How can you enhance their ability to participate in the growing niches?

These questions can be answered by understanding how the sub-sector is changing and why.
The following driving forces and constraints are important in affecting changes:
Key demand
Estimate the demand and trends over the last few years, locally, nationally and even globally.
Population growth and changes in the larger economic environment (prices, wages,
monsoons, booms, recessions and so on) can cause consumption patterns to change rapidly.
Technological change
New machinery or know-how can greatly change production costs, making small firms more
competitive or driving them out of business. What impact will such changes have on poor
producers, on women producers, on the environment?
Profitability of different niches
Individual niches within the production system yield differing returns, providing incentives to
change to the more profitable technologies, supply relationships, and level of specialization.
Risk
Changes in demand, inputs, technology, labor and environmental conditions, and profitability
bring both opportunities and risks. The micro-entrepreneur and the collective enterprise alike
must balance rewards and risks in choosing which channels to operate in.
Barriers to entry
Regulations (such as licensing and zoning), banking practices, lack of information, and
collusion can restrict growth opportunities for micro and small enterprises.
Large firm behavior
Changes in the level or range of activities of a few large firms may dramatically affect the
opportunities open to micro and small enterprises.
Input supply
Poor quality raw materials, unreliable supply sources and environmental damage can severely
restrict the growth potential of enterprises.
Institutional Support
Changes in regulation, promotional and credit policies can have a major impact on functions
within the sub-sector, including raw material supplies, technologies and marketing. Are
changes happening or expected? What impact will they have on the functions and channels
represented on your map?

B. Identify sources of leverage
Leveraged interventions are those that influence large numbers of enterprises at a single
stroke. They are likely to be more cost-effective than one-to-one assistance delivered to
individuals’ enterprises. Because they affect many firms at once, leveraged interventions can
significantly enhance impact and reduce contact costs per enterprise.

To identify sources of leverage look for one of three key ingredients:
System nodes: These are points where large volumes of product pass through the hands of
only a few actors.
Geographical clustering: Physical locations where many producers are located.
Policy Constraints: These affect almost all/ most producers, e.g. taxes, subsidies, import/
export quotas.

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Step 4: Choosing intervention point.
Now we are familiar with:
How the specific commodity you have selected is produced
The various raw materials and support services that are required to produce it
The channels it passes through to reach its final markets
The different players
The technologies being used
The environmental issues
The institutional framework within which the sub-sector operates
The critical numbers, of production, sales, employment, etc.
The dynamics of the sub-sector as it changes over time
The key leverage points

The above process will result in a fair idea about some of the interventions that you could
take up for promoting or supporting many livelihoods. Every intervention requires some
basic competencies and resources. Examine whether the organization has these.

You can draw up an intervention-competency matrix.
List all the possible interventions on the heads of different columns
Assess what competencies/ resources you need to take up these interventions and list these
on the left hand side of your table.
Put a tick mark () in the boxes for competencies required for a particular intervention
and a cross (X) for those not required.
Fill up the various boxes in the table, either with your own organization, if you have the
particular competencies under review, or of other organizations on whom you could draw
for such expertise in a livelihood intervention strategy. Consider carefully whether you
will be able to collaborate with these organizations.

From this analysis you have to make a choice of the intervention strategy that your
organization can take up for promoting or supporting a large number of livelihoods.



The material for this class notes are mainly taken from
ISLP’s “A Resource Book for Livelihood Promotion”

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