PROJECT CLASSIFICATION, IDENTIFICATION & PROCESS

MEANING OF PROJECT

Project is also known as Capital Investment or Capital Expenditure or Capital Project. Capital Expenditure, from accounting point of view is an expenditure which is shown as an asset in the balance sheet. This asset, except in case of non depreciable asset like land is depreciated over its life.

SITUATIONS INVOLVING CAPITAL EXPENDITURE DECISIONS
Insurance Company planning to install a computer system for information processing.

A graduate student planning to buy a bike.

IMPORTANCE OF CAPITAL EXPENDITURE

Long term Effect Irreversibility Substantial Outlay

DIFFICULTIES IN CAPITAL EXPENDITURE

Measurement Problem Uncertainty Temporal Spread

CLASSIFICATION OF PROJECT or CAPITAL INVESTMENT
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Physical Asset Monetary Asset Intangible Asset Strategic Investment Tactical Investment Mandatory Investment Replacement Investment Expansion Investment Diversification Investment R&D Investment

PROJECT IDENTIFICATION
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1) 2) 3) 4)

For establishing a successful venture, the search for promising project idea is the first step. Key to success lies in getting into right business at right time. For identifying opportunities in business, it requires: Imaginative Sensitivity Environment Changes Realistic Assessment

FEASIBILITY STUDY FOR PROJECT IDENTIFICATION
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Generation of Ideas Initial Screening Is the Idea Promising? If Yes, plan feasibility analysis and If No, Terminate it. Conduct Market Analysis Conduct Technical Analysis Conduct Financial Analysis Conduct Economic & Ecological Analysis Is Project Worthwhile? If Yes, prepare funding proposal and If No, Terminate it.

PROCESS INVOLVED IN PROJECT IDENTIFICATION

Generation of Ideas: Ideas with the help of which product or services made have better quality and low price. Monitoring the business environment: Economic Sector Government Sector Technological Sector Competition Sector Supplier Sector

1) 2) 3) 4) 5)

Cont…

Corporate Appraisal: Corporate strengths & weaknesses are essential for identifying investment opportunity which can be profitable. Profit Potential of Industries / Michael Porter Model: Rivalry among existing firm Threat of new entrants Threat of substitute products Bargaining power of buyers Bargaining power of suppliers

1) 2) 3) 4) 5)

Cont…

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Scouting for Project Ideas : Project ideas are key to success. So proper analysis, examine, review, investigation of industry should be done. Trade fairs can also be attended to get new ideas. Preliminary Screening : It involves Availability of inputs Adequacy of market Cost Risk level Government policies

1) 2) 3) 4) 5)

Cont…

Project Rating Index : All the proposals are given rating on rating scale. Selection of best appropriate project : Project that gets the highest rank is selected.

I AM NOT EXPECTING ANY QUERY !!!!!!!!!

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