Generation and Screening of

Project Ideas

Generation of ideas
Monitoring the environment
Corporate appraisal
Profit potential of industries : Porter model
Scouting for project ideas
Preliminary screening
Project rating index
Sources of positive net present value
On being an entrepreneur

Generation of Ideas
To stimulate the flow of ideas, the following are helpful
SWOT analysis
Clear articulation of objectives

Fostering a conducive environment

Business Environment

Competito
r

Corporate Appraisal
Marketing and distribution

Production and operations

Research and development
Corporate resources and personnel
Finance and accounting

Tools for Identifying Investment Opportunities

There are several tools or frameworks that are helpful in
identifying promising investment opportunities. The more
popular ones are:
Porter model
Life cycle approach

Experience Curve

Porter Model
According to Michael Porter the profit potential of an industry
depends on the combined strength of the five basic competitive
forces as shown below
Forces Driving Industry Competition
Potential
Entrants
Threat of New
Entrants

Supplier
s

Bargaining
Power of
Suppliers

THE INDUSTRY
Rivalry Among
Existing Firms

Threat of
Substitut
e
Products
Substitute
s

Bargaining
Power of
Buyers

Buyers

Life Cycle Approach

Many industrial economists believe that most products evolve
through
a life cycle that has four stages:
Pioneering stage
Rapid growth stage
Maturity and stabilisation stage
Decline stage
Investment in the pioneering stage, per se, may have a low
return and negative NPV. However, it may create options
for participating in growth.

Most products evolve through a life cycle. The broad

stages and
the investment returns in these stages are as follows:
Stage
Pioneering

Investment Returns
May have negative
NPV but may create
options for participating
in
growth stage

Rapid growth

Positive NPV

Maturity

NPV - neutral

Decline

Negative

Experience Curve
The experience curve shows how the cost per unit behaves with respect to
the accumulated volume of production
10
0
8
0

6
0
4
0

8
1 2 4
0
0 0 0 volume of
Accumulated
production

The key factors that contribute to decline in unit cost with respect to the
accumulated volume of production are learning effects, technological
improvements, and economies of scale

Scouting for Project Ideas

Analyse the performance of existing industries
Examine the inputs and outputs of various industries
Review imports and exports
Study plan outlays and governmental guidelines
Look at the suggestions of financial institutions and development
agencies
Investigate into local materials and resources
Analyse economic and social trends
Study new technological developments

Draw clues from consumption abroad

Explore the possibility of reviving sick units
Identify unfulfilled psychological needs
Attend trade fairs
Stimulate creativity for generating new product ideas
Hope the chance factor will favour you

Preliminary Screening

Compatibility with the promoter

Consistency with governmental priorities
Availability of inputs
Adequacy of market
Reasonableness of cost
Acceptability of risk level

Project Rating Index

The steps involved in determining the project rating

index are
as follows

Identify factors relevant for project rating

Assign weights to these factors ( the weights are supposed to reflect
their
relative importance)
Rate the project proposal on various factors, using a suitable rating
scale
(Typically a 5-point scale or a 7-point scale is used for this purpose.)
For each factor, multiply the factor rating with the factor weight to get
the
factor score
Add all the factor scores to get the overall project rating index

Construction of a Rating Index

Factor
Factor

Factor

Rating

Weight

Score
VG
5

Input availability
Technical know-how
0.40
Reasonableness of cost
0.20
Adequacy of market
0.75
Complementary relationship
with other products
0.20
Stability
Dependence on firms
strength
Consistency with
governmental priorities

G
4

A
3

P
2

0.25

0.05

0.05

0.10

0.10

0.75

0.10

0.15

0.20

VP
1

0.40

1.00

Rating Index

0.30
4.00

Sources of Positive NPV

It appears that there are six main entry barriers that result in positive
NPV
projects. They are as follows:

Economies of scale
Product differentiation
Cost advantage
Marketing reach
Technological edge
Government policy

The Questions Every Entrepreneur Must Answer

According to Amar Bhide the following are the questions
that every entrepreneur must answer:

Are my goals well defined ?

Personal aspirations

Business sustainability and size

Tolerance for risk

Do I have the right strategy?

Clear definition

Profitability and potential for growth

Durability

Rate of growth

Can I execute the strategy

Resources

Organizational infrastructure

The founders role

Qualities and Traits of a Successful Entrepreneur

It appears that a successful entrepreneur has the following
qualities and traits :

Willingness to make sacrifices

Leadership
Decisiveness
Confidence in the project
Marketing orientation
Strong ego
Open-mindedness