CHAPTER ONE

Overview of Project Concepts

1.1 Definition of Project
Project is a temporary endeavor undertaken to a unique products or services. Temporary means that every
project has a definite end. Unique means that the product or service is different in some distinguishing way
from all similar product or services.
It is an endeavor in which human or machine, material, financial resources are organized in a novel way to
undertake a unique scope of work, of given specification within constraints of cost and time, so as to deliver
beneficial change defined by quantitative and qualitative objectives. A scheme of something to be done; a
proposal for an undertaking.
 A project is a set of proposals for the investment of resources into clearly identified set of actions
(frequently in the public sector) that are expected to produce future benefits of a specific kind.
 It may also be defined as a scientifically evolved (developed) work plan devised to achieve a specific
objective within a specified period of time.
1.2 CHARACTERISTICS OF A PROJECT
Though various connotations are given to the concept of a project, they have the following basic characteristics:
1. Investment Pattern:
 Projects involve the commitment of scarce resources to a specific line of action, which prevents the
use of those resources elsewhere.
 These resources include:
a) Financial capital,
b) Raw materials,
c) The product of manufacturing and services capacity elsewhere in the economy,
d) Labor of various kinds,
e) Managers and organizers and so on.
 Almost all of these are certain to have alternative possible uses elsewhere.
 The pattern of investment commitment in a project is usually for capital investments to be made to
establish productive capacity or physical works, which then have a long life of operation or use.
2. Benefits or gains:
 Project resources are committed for a long period to produce benefits that are usually quite
clearly identifiable, but which may not occur or be clearly felt for several years.
 Their effects are usually gradual and lasting, but involve waiting for results. This waiting
obviously has a cost.

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3. Time limit:
 Projects have their own time perspectives, which set the period of time during which the project
development and project activities are undertaken.
 As a result, projects need special arrangements and procedures for their planning, appraisal and
so on because of the shortage of resources usable for development, the large amount of resources
that they can absorb, and the need to wait for benefits.
4. Location:
 Projects normally have specific geographic location or a rather clearly understood geographic
area of focus.
 There will be a specific in the area (region) whom the project is intended to reach and whose
traditional and social pattern the project will affect.
5. Focus:
 A project has fixed set of objectives/missions/goals.
 Once these objectives, goals or mission have been achieved, the project will cease to exist or
become extinct from the organizational pyramid sooner they are met.
6. Life span:
 Project cannot continue infinitely; it is executed, terminated or dead.
 Every project is invariably time bound.
 The time limits are well defined through schedules.
7. Single-time activity: /Unit of command/:
 No project is often repeated.
 Every project, may it be simple or complex, small or big, industrial or commercial, government
or private, is unique in nature and may be vanquished or performed of its quality only at once.
 However similar the projects may be, the activities and their comprehension in operations, scope,
deliverable, etc would indeed change from each other.
 Consequently, the entire responsibility of handling the project will be entrusted to the single head
(project manager) who will ultimately account for the whole performance.
8. Uniqueness:
 Projects are as unique as fingerprints two individuals.
 No two projects are alike in their execution even if the plans are duplicated.
 In other words, usually a project is a unique activity noticeably different from proceeding similar
investments, and it is likely to be different from succeeding ones.
 The deployment and performance of the resources will vary which convey conformance and
confirm to unique standards and quality.

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9. Team Sprit:
 Every project encourages a team spirit.
 This team consists of different individuals from varied disciplines to bestow their knowledge,
experience, and credence towards a total performance.
10. Life-cycle:
 Like any other product, project will also be reflected and influenced by the life-cycle phases and to
which the success or failure in the project can be ascribed.
 Regularly, from conception to the commissioning of the project.
 In reality, project has to run through some phases that are intertwined with various stages.
11. Flexibility:
 Change and projects are synonymous.
 Always a project witnesses multiples of modifications and changes in its original plans, programs
and budgets.
 These constant drills make the projects more dynamic and flexible.
 Another prominent reason why the projects are more flexible is that the ideas in the conception stage
are only half backed and as the ideas are being prototyped the real dilemma gets penetrated and
clarity makes project 'full-backed' and 'crunchy nut'.
 Therefore, every project have a room for change and inherently flexible in the early stages of its life
cycle.
12. Abstract to Discerning (sharp):
 A project generally transmits through a process called 'blurred (unclear) and crystal-(translucent)
clear’.
 When the idea is conceived, it may be rich with sparsely 50-60% information on SWOT analysis.
 As it moves further towards various analytical stages, the more transparent or clear it gets to on the
future prospects and goals.
13. Customer-specific:
 Projects are not ready-made rather they are made ready.
 A project will have semblance only when there is a demand from a specific customer or group of
customers in the form of sponsors.
 Therefore, a project is always customer-specific and considers the constraints on the demand side of
economics more often than on the credits or supply side.
 The conveniences of the supply side of economics such as labor availability or resources and
managerial talent, etc. are of secondary concern, primary being the 'customer-requirement'
.

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14. Complex web of things, people and environment:
 A project is not contingent to a single factor related with the project. It is a mix of all the man-made
and natural things, which form a complex interrelationship between for a right cause. This unity of
diversity is a global concept for any project.
15. Subcontracting:
 Subcontracting is a subset of every project and without which no project can be completed unless it
is proprietary form or tiny in nature.
 Subcontracting is an inescapable fact of project, to be dosage appropriately, with in time.
16. Individual Identity:
 Frequently projects involve special financial arrangements.
 In projects for public sector, it includes loans from overseas, development banks and other agencies,
or donations.
 Because relatively few projects are financed simply from government allocations, the financing for a
project refers to closely defined actions.
 This financial definition tends to give projects a clear boundary & individual identity.
 Thus, the planning, financing & implementation is made as unit.
17. Risk and Uncertainty:
 This is a way of life of projects.
 Risk, uncertainty and projects are positively correlated.
 A well-conceived project may have lesser degree of risk and uncertainty whereas an ill-prepared
project has higher degree of risk.
18. Size:
 Often projects form a clear and distinct portion of a larger, less precisely identified program.
 The whole program might possibly be analyzed as a single project; but by and large, it is better to
keep projects rather small, close to the minimum size that is economically, technically, and
administratively feasible.

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1.3 IMPORTANCE OF PROJECTS
Generally, projects have the following dimensions
1. They become the catalytic agents of economic development
2. They initiate the process of development - production, employment, income generation and so on
3. They have consequences, which are long-term in nature.
4. Projects provide the framework of the future activities of the enterprise
5. They also shape the future pattern of services
6. They also initiate development of basic infrastructure and environment
7. Project identification brings the necessary changes in society in course of time.
8. Projects accelerate the process of socio-cultural development.
1.4 Project Stakeholders
Definition of stakeholders
 Stakeholders are the ones who have a share, or an interest in an enterprise.
 Stakeholders in a company may include:
1) Shareholders,
2) directors,
3) management,
4) suppliers,
5) government,
6) employees,
7) Customers and the community.
 Stakeholders have varying level of responsibility and authority.
 Thus, they should not be ignored.
 A project manager should try to manage and fulfill the expectations of the stakeholders.
Definition of project stakeholders
 Project stakeholders are individuals and organizations that are actively involved in the project, or
whose interests may be affected as a result of project execution or project completion.
 The project management team must identify the stakeholders, determine their requirements and
expectations, and, to the extent possible, manage their influence in relation to the requirements to
ensure a successful project.

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 Influences of project stakeholders
 Stakeholders may have a positive or negative influence on a project.
1. Positive stakeholders: are those who would normally benefit from a successful outcome from the project.
For example, business leaders from a community that will benefit from an industrial expansion project
may be positive stakeholders because they see economic benefit to the community from the project’s
success. In the case of positive stakeholders, their interests are best served by helping the project succeed,
for example, helping the project obtains the needed permits to proceed. while,
2. Negative stakeholders: are those who see negative outcomes from the project’s success. For example,
environmental groups could be negative stakeholders if they view the project as doing harm to the
environment. The negative stakeholders’ interests would be better served by impeding the project’s progress
by demanding more extensive environmental reviews. Negative stakeholders are often overlooked by the
project team at the risk of failing to bring their projects to a successful end.

Key Stakeholders:
Key stakeholders include the following:
1) Project Manager: The person, who is responsible for managing the project.
2) Customers, End Users:
The person or organization that will use the project’s product is known as End users. These may be multiple
layers of customers. For example, the customer for a new pharmaceutical product can include the doctors who
prescribe it, the patient who take it and the insurers who pay for it. In some application areas, customers and
user are synonymous, while in others, customer refers to the entity acquiring the project’s product and users are
those who will directly utilizes the project’s product.
3) Performing Organization:
The enterprise whose employees are most directly involved in doing the work of the project,
4) Project Management Working on the Project:
The members of the team who are directly involved in project management activities.
5) Project Team Members:
The group that is performing the work of the project. It includes the members who are directly involved in the
project activities.
6) Sponsors:
The person or group that provides financial resources, in cash, or kind, for the project.

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7) Influencers:
People or groups that are not directly related to the acquisition or use of the project’s product, but due to an
individual’s position in the customer organization or performing organization, can influence, positively or
negatively, the course of the project.
8) Project Management Organization:
If it exists in performing organization, the Project Management Organization can be a stakeholder if it has
direct responsibility for the outcomes of the project.
1.5 Project Classification
Projects have been classified in various ways by different authorities:
1.5.1 Project levels
Project work in its broadest sense takes place at three levels:
 At the national level, where national investment plans are formulated, priorities among sectors are
established, and the macroeconomic framework of policies for economic growth is put in place.
 At the sector level, where priorities for investment within each sector are determined and the issues and
problems affecting the development of the sector are addressed.
 At the project level, where individual projects are identified, prepared, and implemented and attention is
given to their technical, economic, financial, social, institutional, and other dimensions.
1.5.2 Quantifiable (Product) and Non-quantifiable (services) Project
Two broad categories of projects, namely, quantifiable projects and non-quantifiable projects are there.
1. Quantifiable Projects: are those in which a plausible quantitative assessment of benefits can be made.
Projects concerned with industrial development such as power generation, mineral development, etc.
2. Non-quantifiable projects: are those where such assessment is not possible. Projects involving health,
education and defense fall in the second category.
1.5.3 Sectaral projects
Any country has its own sectoral criterion for classification of projects. A project may fall into any one of the
following sectors:
a. Agricultural and Allied sector
b. Irrigation and Power sector
c. Industry and Mining sector
d. Transportation and Communication sector
e. Social Service sector
f. Hotel and Tourism
g. Miscellaneous
This system of classification has been found useful in resource allocation at macro-level.

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1.5.4 Techno-Economic Project
Sometimes, projects are classified on the basis of their techno-economic characteristics. Three main groups of
classification can be identified here:
a. Factor-Intensity-Oriented Classification: On the basis of this classification projects may be classified as:
 Capital-intensive or labor-intensive depending upon whether large-scale investment in plant and
machinery or human resources is involved.
b. Causation-Oriented Classification: Here projects are classified as:
 Demand-Based or raw material-based projects depending on the non-availability of certain goods or
services and consequent demand for such goods or services or the availability of certain raw materials,
skills, or other inputs as the dominant reason for starting the project.
c. Magnitude-Oriented Classification: In this, the size of investment forms the basis for classification.
Projects may be classified as large-scale, medium-scale or small-scale projects depending upon the total
project investment.

1.5.5 Financial Institutions Classification

Financial institutions classify the project according to their age and experience and the purpose for which the
project is being taken up. They are as follows:
a. New Projects
b. Expansion Projects
c. Modernization Projects
d. Diversification Projects
The projects listed above generally profit-oriented.
1.5.6 Service Projects
The service-oriented projects are classified as under:
a. Welfare projects
b. Service projects
c. Research and Development Projects
d. Educational Projects
1.6 Projects, Development Plans and Programs

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Development plans
 It is a continuous process, which involves decisions or choice, about alternative ways of using available
resources, with the aim of achieving particular goals at some time in the future.
Programs
 It is a definite plan of any sequence of operations aimed at the attainment of the planned objectives.
 It is a plan of activities with general objectives that would be derived from the development plan
Project
 It is the smallest operational element prepared and implemented as a separate entity in a national plan or
program of development.
 It is a specific activity with a specific starting point and specific objectives.
 Development projects are one of the means used to achieve development objectives
Generally, a combination of the various strategies is used to attain the development objectives. Selection among
the different strategies depends on the prevailing circumstances of the country.
1.6.1 Relationships between Projects and development plans
1. Projects are means by which expenditures foreseen in plans can be clarified and realized.
 Projects provide an important means by which investment and other development expenditures foreseen in
plans can be clarified and realized.
2. The two are interdependent.
 Sound development plans require good projects, just as good projects require sound planning.
3. Plan requires knowledge about projects.
 A sound plan requires a great deal of knowledge about the existing and potential projects.
 Sound planning rests on the availability of a wide range of information about existing and potential
investments and their likely effects on growth and other national objectives.
 It is project analysis that provides this information, and the projects selected for implementation
become the vehicle for using resources.
 Thus, plans require projects. Realistic planning involves knowing the amount that can be spent on
development activities each year and the resources that will be required for particular kind of project.
4. Projects should be placed within development plan.
 Since projects commit scarce resources, project selection is meaningful only when it is placed within
a broader development framework.
 This framework could be a medium or long-term development plans and policy statements issued by
the government.
 The best economic appraisal of projects cannot be made without referring to such plans and policies.

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  Moreover, effective project preparation and analysis must be set in the framework of a broader
development plan. As stated above, projects are a part of an overall development strategy and a
broader planning process.
5. Project analysis improves resource allocation.
 Government must allocate their available financial and administrative resources among many sectors
and many competing programs.
 Project analysis can help improve this allocation. Within the broad strategy, planners have to
identify potential projects that address the policy of production targets and priorities.
6. Clear plan eases the work of project planner.
 The more elaborated the plans and policies of the government are, the easier becomes the work of
the project planner.
 For example, the project planner will have to refer to such plans and a policy to see to it that the
project being considered fits well in the plan and contributes most to the fundamental objectives of
the government.
 These objectives can include self-sustaining growth, promotion of employment and income
distribution etc.
7. Successful implementation of development plan depends on the proper selection of projects.
 National plans and elaborated sectoral programs are of great help in identifying development
projects.
 A realistic plan should be prepared by assessing the development potentials in the various sections of
the economy.
 It is, therefore, obvious that the successful formulation and implementation of a national
development plan depends on the proper selection of projects and on the consequent sectoral
programs. Thus, project Formulation and Evaluation, as a continuous integrated process, is one of
the basic components of economic planning.
In order to ensure realistic planning, an iterative process with a sufficient flow of information,
suggestion and guidance between decision makers at the macro levels are essential.
8. Projects are crucial building blocks of a development structure.
 As projects are rightly called the "Cutting Edge" of development, they are powerful means to achieve the
development objectives; they are crucial building blocks of a development structure.
9. Projects advance social wellbeing by increasing production.
 Projects aim, mainly, at increasing the production of goods & services which are fundamental
components of people's welfare & the core aim of development efforts is to advance social well-being.

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1.6.2 Projects and Programs
 Program is a definite plan or scheme of any sequence of operations aimed at the attainment of the
planned objectives.
 This explanation assumes that program is a plan of activities with general objectives that would be
derived from the development plan.
Programs and projects have got their own differences and similarities. For clarity purpose, let's outline some of
the major differences and similarities of the two concepts as follows.
Differences
Projects Programs
1. Specific objective General objective
2. Specific project area No specific project area
3. Specific beneficiaries group No specific beneficiaries group
4. Clearly determined and allotted Fund No clear & detailed financial resource allocation
5. Specific lifetime No specific lifetime
Similarities
Projects and programs have similar characteristics in terms of:
1. /Having objective
2. Requiring financial, human, material, etc. inputs
3. Generating output (goods/services)
4. Serving as instruments for the execution of development plans in order to develop the national
economy.
1.7 Project Management
Project Management is a dynamic process, conducted within a defined set of constraints that organizes and
utilizes appropriate resources in a controlled and structured manner in order to achieve some clearly defined
objectives. 
1.7.1. Key Areas of Project Management
Key areas to consider when looking at project management are management of:
1. Time,
2. People, and
3. Other resources. In general terms, these activities can be described as follows:

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 Management of Time
 Ensuring that the project completes its work on time
 Scheduling use of resources
 Rescheduling the project in the light of experience
 Predicting problems before they arise
 Management of People
 Ensuring that people are available at the right time
 Ensuring that personnel know their roles and can perform their functions properly
 Managing people’s expectations
 Resolving conflicts between people
 Changing people’s roles in the light of experience
 Management of Other Resources
 Ensuring that appropriate resources are allocated
 Ensuring that the appropriate resources are available at the right time
 Reallocating resources in the light of experience
 Tailoring activities to limited resources
 Making maximum impact with available resources
The difference between Project and Organizational Management
Of course there are many similarities between project and organizational management, but the nature of projects
means that there are some differences of approach as well. These include:
1. The lack of permanence of staff in project management
 People might be employed on a temporary basis or as consultants
2. The lack of permanence of roles of staff in project management
 People involved in the project may play very different roles at different times; the hierarchy is not so
clearly set.

3. Clear plan, time frame and budget in project management

 There is a clear plan, time frame, and budget for the project and therefore planning within this is
important. In organizational management the constraints are frequently not so clearly set
4. Clear overall objectives and time frame to achieve them in project management
 There are clear overall objectives and a time frame in which to achieve them success will be
measured against the ability to meet objectives
5. Stakeholders play a more important and direct role in project management

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  A project manager should take into account the specific desires and interests of donors, target groups,
and all institutions co-operating in the implementation, whereas a manager in an organization is
primarily interested only in direct clients and shareholders
The Role of the Project Manager
 Selection of the right project manager is a critical.
 The demonstrated knowledge, skills, and abilities of a project manager have a direct impact on the
probability of success of any project.
 The project manager is responsible for management of all aspects of the project.
 From an overall perspective, the project manager ensures the project is on time, within budget, and
delivers a product or service at an acceptable level of quality.
A project manager’s role typically includes some or all of the following:
 Providing direction, leadership and support to project team members.
 Monitors progress of implementation
 Manages resources efficiently
 Motivates staff
 Ensures communication (internal and external)
 Providing teams with advice and input on tasks throughout the project, including documentation,
creation of plans, schedules, and reports.
 Resolving conflicts affecting the project’s resources, schedules, etc.
A major part of project management is related to dealing with "stakeholders" by which we mean someone who
has an interest in the project. This is a much wider set of actors than the immediate beneficiaries of the project.

Skills of Project manager

Project manager need appropriate personal and management skills to manage projects successfully. There are
six sets of management skills required for project managers to effectively manage a project. These are:
1. Communication skills: includes listening, persuading.
2. Organizational skills: includes planning, goal-setting, analyzing.
3. Team Building skills: includes empathy, motivation.
4. Leadership skills: includes sets example, energetic, vision (big picture), and delegates, positive.
5. Coping skills: includes flexibility, creativity, patience, persistence.
6. Technological skills: includes experience, project knowledge

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1.8 Project Life Cycle
 Before any project is actually realized it goes through various planning phases.
 The different phase through which a project passes is called “the project cycle”.
 The project work comprises of several distinct stages, commonly referred as the project cycle.
 The stages are closely linked and follow a logical progression with the later stages providing the basis for
a renewal of the cycle.
 This project cycle considers various stages in which each stage not only is grown out of the proceeding
ones, but also leads into the subsequent ones. The planning process does not contain such a stringent
sequence of events since all aspects of the project have to be considered simultaneously and, if necessary,
adjusted to one another.
 Therefore, project cycle is a self-renewing cycle in that new projects may grow out of the old ones in a
continuous process and self-sustaining cycle of activity.
Let see six stages for only discussion purpose
1. Project identification
2. Project preparation (feasibility study)
3. Project appraisal and selection
4. Project planning
5. Project implementation
6. Project monitoring and evaluation
These processes can usefully be considered as a comprehensive sequence in the sense that for the project that is
implemented, each stage naturally follows the proceeding one and leads on to the next. Actually, the division
into stages is artificial, but it helps us to understand that project planning, though a continuous process overtime,
has distinct phases and stages.

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 CHAPTER TWO
Project Identification
1 Pre-Identification

This pre-identification stage involves surveying, reviewing, inventorying, and analysis of:
 Strategies and policies,
 Natural resources data, and
 Socio-economic information
It is a very important phase in project planning. Unfortunately, it is an aspect of planning, which is either,
almost totally ignored or for which inadequate resources are provided in most developing countries.
There are a number of reasons:
1. Sheer (complete) ignorance - an ignorance of need and ignorance of cost-effective ways of carrying the
research, surveys, inventorying of resources and integrating and analyzing the information
2. Such work tends to be regarded as an expensive overhead cost and therefore, expendable in difficult
times of budgetary.
3. A lot of the work has tended to be time consuming, people cannot wait for results and do not consider it
important to even start it.
Importance of pre-identification is to check whether the project is within development framework.
A good idea being a prerequisite to sound project formulation and the analysis of data identifying gaps and
throwing up ideas for possible projects, project identification must be carried out also with in a framework of
national, regional and sectoral development (including pricing, taxation and subsidy) policies. Otherwise, much
time and effort might be wasted in identifying and preparing projects which would be reflected on policy
grounds or which might turn out to be unfeasible because of, for example, a tax and subsidy policy.
Thus, those who are responsible for identifying projects need to be aware of accepted strategies and policies and
also be in a position to feedback information to those who are responsible for formulating policies.

2.2 Project Identification

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 The first stage in the project cycle is to find potential projects.
 The search for promising project ideas is the first step towards establishing a successful project/business.
 Project identification consists in finding projects, which could contribute towards achieving specified
development objectives. In principle, project identification should be an integral part of the macro-planning
exercise, with sectoral information and strategies as the main source of project ideas.
 The key to success lies in getting into the right business at the right time.
 The objective is to identify investment opportunities, which are prima facie feasible and promising and
which merit further examination and appraisal.
Sources of Project Ideas
In general, most projects start as an elementary idea. Eventually, some simple ideas are elaborated into a form
to which the title “project” can formally be applied.
 Projects derive from national and sectoral plans
 In practice, however, projects do not always derive from national and sectoral plans.
 Instead, they may originate from several sources.
 Irrespective of their origin, project ideas should, in general, aim at overcoming constraints on the national
development effort, be they material, human or institutional constraints, or at meeting unsatisfied needs, and
demand for goods and services.
Levels Where project ideas are Born
 In general, one can distinguish two levels where project ideas are born. These are the macro-level & the
micro-level.
a) Macro-Level project Ideas
At the macro-level, project ideas emerge from:
1. Policies: National policies, strategies & priorities as may be enunciated by government from time to
time;
2. Plans and Strategies: National, sectoral, sub-sectoral or regional plans and strategies supplemented by
special studies, sometimes called opportunity studies, conducted with the explicit aim of translation of
national and sectoral, sub-sectoral and regional programs into specific projects;
3. Studies and publications: General surveys, resource potential surveys, regional studies, master plan
and statistical publications, which indicate directly or indirectly investment opportunities.
4. Constraints in the development process: Constraints on the development process due to shortage of
essential infrastructure facilities, problems in the balances of payments, etc.
5. Government decision to correct social and regional inequalities or to satisfy basic needs of the
people through development projects.

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 6. A possible external threat that necessitates projects aiming at achieving, for example, self-sufficiency
in basic materials, energy, transportation, etc.
7. Unusual events such as droughts, floods, earthquakes, hostilities, etc.
8. Government decisions to create project-implementing capacity in such area as construction etc.
9. Multilateral or bilateral development agencies: At the macro-level, project ideas can also originate
from multilateral or bilateral development agencies & as a result of regional and international
agreements in which the country participate.etc
b) Micro-Level project Ideas
At the micro-level, the variety of sources is equally broad. Project ideas emanate from:
1. Demand or needs: The identification of unsatisfied demand or needs. Some projects may be ‘market-based’
arising from an identified demand in the home or overseas markets. Others may be ‘need-based’ where the
purpose is to try to make available to all people in the area of minimal amounts of certain basic material
requirements and services.
2. Unused Resources: The existence of unused or underutilized natural or human resources and the perception
of opportunities for their efficient use. Some may be ‘resource-based’ & stem from the opportunity to
make profitable use of available resources
3. Constraints: The need to remove shortages in essential materials, services or facilities that constrain
development efforts;
4. The initiative of private or public enterprises in response to incentives provided by the government
5. The necessity to complement or expand investments previously undertaken;
6. The desire of local groups/organizations to enhance their economic status & improve their welfare; well-
informed technical specialists and local leaders are also common sources of projects. Technical specialists
will have identified many areas where they feel new investment might be profitable, while local leaders may
have suggestions about where investment might be carried out. Etc
Stimulation (inspiration or motivation) of project ideas
 To stimulate the flow of project ideas, the following are helpful:
1) SWOT Analysis
2) Clear Articulation of Objectives
3) Monitoring the Environment
4) Corporate Appraisal
5) Fostering a Conducive Climate
1. SWOT Analysis
 SWOT is an acronym for strengths, weaknesses, opportunities, and threats.

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 SWOT Analysis represents a conscious, deliberate, and systematic effort by an organization to identify
opportunities that can be profitably exploited by it.
 Periodic SWOT analysis facilitates the generation of project ideas.
2. Clear Articulation (understanding) of Objectives
 A clear articulation and prioritization of objectives helps in channeling the efforts of employees and
stimulate them to think more imaginatively.
 Operational objectives of a firm may be one or more of the following:
o Cost reduction
o Productivity improvement
o Increase in capacity utilization
o Improvement in contribution margin etc.
3. Monitoring the sectoral Environment
The important aspects studied in monitoring the key sectors of the environment are as follows:
a) Economic environment
b) Governmental sector policy, plans, strategy, programs and projects
c) Technological environment
d) Socio-demographic environment
e) Competition environment
f) Supplier environment
4. Corporate Appraisal(evaluation)
Important aspects to be considered under this are:
a) Marketing and distribution strategy
b) Production and Development strategy
c) Research and development
d) Corporate resources and personnel
e) Finance and Accounting
5. Fostering (promotion or encouragement) a Conducive Climate
 To tap the creativity of people and to harness their entrepreneual urges, a conducive organizational climate
has to be fostered.
Opportunity studies
 It is analyzing or studying different factors or sources of project ideas that are listed above.
 It is an instrument that helps to change the project idea in to project proposal.

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 The main instrument used to quantify the parameters, information and data required to develop a project
idea into a proposal is the opportunity study, which should analyze or study the different factors, or sources
of project ideas that are listed above.
 Opportunity studies are rather sketch/plan in nature and rely more on aggregate estimates than on detailed
analysis.
 Opportunity studies could be general or specific.
1. General opportunity studies (sector approach). It could be area studies designed to identify
opportunities on a given area (Administrative province, backward region), industry studies to
identify opportunities in delimited industrial branch and resource-based studies to reveal
opportunities based on the utilization of natural, agricultural or industrial.
2. Specific Project Opportunity Studies (enterprise approach) are seen in the form of products with
potential for domestic manufacture. A specific project opportunity study may be defined as the
transformation of a project idea into a broad investment proposition.
 A project opportunity study should not involve any substantial cost in its preparation, as it is intended
primarily to highlight the principal investment aspect of a possible industrial proposition. The purpose of
opportunity study is to arrive at a quick and inexpensive determination of salient facts of an investment
possibility.
2.3 Screening potentially promising ideas

 Once a list of project ideas has been put forward, the first step is to select one or more of them as potentially
promising.
 This calls for a quick preliminary (first round) screening by experienced professionals who could also
modify some of the proposals.
 At this stage, the screening criteria are vague and rough, that becomes specific and refined as project
planning advances.
 During the preliminary screening to eliminate ideas, which are not promising, it is required to look into
aspects such as:
1. Compatibility with the promoter
2. Consistency with government priorities
3. Availability of inputs
4. Adequacy of market
5. Reasonableness of costs
6. Acceptability of risk level
a) Compatibility With The Entrepreneur
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The idea must be compatible with the interest, personality, and resources of the entrepreneur. A real opportunity
may fulfill the following three characteristics:
1. It fits the personality of the entrepreneur;
2. It is accessible to the entrepreneur; and
3. It provides the prospect of rapid growth and high return on invested capital.
b) Consistency With Government Priorities
 The project idea must be feasible given the national goals and governmental regulatory framework. You
may need to ask yourself:
 Is the project consistent with national goals and priorities?
 Is there any environmental effect contrary to governmental regulations?
 Can the foreign exchange requirement of the project be easily accommodated? Etc.
c) Availability of Inputs
 The resources and inputs required for the project must be reasonably assured.
 To assess this, the following questions need to be answered:
 Are the capital requirements of the project within manageable limits?
 Can the technical know - how required for the project be obtained?
 Are the raw materials required for the project available domestically at a reasonable cost?
d) Adequacy of the Market
 The size of the present market must fit the prospect of adequate sales volume.
 Further, there should be a potential for growth and a reasonable return on investment.
 To judge the adequacy of the market, the following factors have to be examined:
 Total present domestic market.
 Competitors and their market shares.
 Export markets.
 Analyze price profile of the product such as competitive product.
 Sales and distribution system.
 Projected increase in consumption.
 Barriers to the entry of new units.
 Economic, social and demographic trends favorable to increased consumption.
 Patent protection.
e) Reasonableness of cost
 The cost structure of the proposed project must enable to realize an acceptable profit with a price.
 The following points should be reminded in this regard:

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  Cost of material inputs
 Labor costs
 Factory overheads
 General administration costs
 Selling and distribution costs
 Service costs
 Economies of scale
f) Acceptability of Risk Level
 The desirability of a project is critically dependent on the risk characterizing it. Whether the risk elements of
the project is taken into consideration while designing the new profitable projects.
 During preliminary selection, the analyst should eliminate project proposals that:
- Are technically unsound and risky;
- Have no market for the output;
- Have inadequate supply of inputs;
- Are very costly in relation to benefits;
- Assume over – ambitious sales and profitability.
During preliminary screening exercise
 As a result of the preliminary screening exercise, a project profile, an opportunity study report, or an
identification study report, as appropriate, is prepared showing which project alternatives should be
rejected and which ones may be advanced to the next stage.
 During preliminary selection, the analyst should eliminate project proposals that:
 Are technically unsound and risky;
 Have no market for the output;
 Have inadequate supply of inputs;
 Are very costly in relation to benefits;
 Assume over-ambitious sales and profitability.

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 2.4 Project Rating Index

 When a firm evaluates a large number of project ideas regularly, it may be helpful to
streamline the process of preliminary/Introduction screening.
 For this purpose, a preliminary evaluation may be translated into a project-rating index.
 The steps involved in determining the project-rating index are as follows:
1. Identify factors relevant for project rating.
2. Assign weights to these factors (the weights are supposed to reflect their relative
importance).
3. 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).
4. For each factor multiply the factor rating with the factor weight to get the factor score.
5. Add all the factor scores to get the overall project-planning index.
The following table illustrates the determination of the project-rating index. Once the project
rating index is determined, it is compared with a pre-determined hurdle value to judge whether
the project is worthwhile or not.
Rating Index:
Rating
Factor VG G A P VP Factor
Factors Weight 5 4 3 2 1 Score
Input availability 0.25  0.75
Technical know-how 0.10  0.40
Reasonableness of cost 0.05  0.20
Adequacy of market 0.15  0.75
Complementary relationship with other products 0.05  0.20
Stability 0.10  0.40
Dependence on firm's strength 0.20  1.00
Consistency with governmental priorities 0.10  0.30
4.00

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