PROJECT IDENTIFICATION FOR BUSINESS

PROJECTS
Investment or project idea is the logical start of
any investment activity. It is usually the output
of a thorough analysis being conducted under
the project identification phase.

prospernkuru@yahoo.fr Intern in Trac Plus

Searching for project ideas that can be
transformed into an investment opportunity
involves several processes such as
environmental scanning, market analysis and
commodity system analysis. Likewise, project
ideas can be identified from national/regional
development plans, sector surveys, technical
packages and industry studies.

prospernkuru@yahoo.fr Intern in Trac Plus

 1. PROJECT IDEA GENERATION
 

Project ideas and/or investment opportunities

can be conceptualized through the following
approaches:

prospernkuru@yahoo.fr Intern in Trac Plus

Environmental Scanning
• Environmental scanning is a process of careful scrutiny or
examination of the problems and threats in the
environment that can be turned into an investment
opportunity.
Normally, the environment has several components, namely:
• Natural Resources
• Economic Forces
• Social Forces
• Political Forces
• Technology Advancements
• Culture and Ideologies

prospernkuru@yahoo.fr Intern in Trac Plus

• Some tools for environmental scanning
SWOT analysis
PESTEL

prospernkuru@yahoo.fr Intern in Trac Plus

 A threat or problems is turned into an
opportunity
• Environmental Threats and/or Problems
• Increasing cases of soil acidity due to high
dependency on the use of inorganic fertilizers
Opportunity
• Manufacture of organic fertilizers
• Crop diversification
• Manufacture of soil neutralizing agents (e.g.
lime, zinc oxide, etc.)
prospernkuru@yahoo.fr Intern in Trac Plus
Threat/problem
1. Increasing chinese migrants in Kigali city
Opportunity
2. Continuous degradation of forest
Opportunity
1. Establishment of restaurant specializing in “chinese
food”
• Establishment of community agro-forestry projects
• Establishment of fruit and forest tree nurseries
prospernkuru@yahoo.fr Intern in Trac Plus
 2. Market Analysis

Potential investments can be identified from

the external and internal markets, including
the market for public goods and services. In
the identification of market opportunities, it is
particularly helpful to refer to Investment
Priorities Plan (IPP) and the Export Priorities
Plan (EPP) which contain projections of
demand and supply gap for specific
commodities.
prospernkuru@yahoo.fr Intern in Trac Plus
 3. Demand and Supply Gap Analysis

• The starting point for the discipline of marketing lies

in human needs and wants. People need food, air,
water, clothing and shelter to survive. Beyond this,
people has a strong desire for recreation, education,
and other services.
• These needs are not created by their society, or by
marketers; they exist in the very texture of human
biology and the human condition. 

prospernkuru@yahoo.fr Intern in Trac Plus

• Wants are desires for specific satisfiers of
these deeper needs. While people’s needs are
few, their wants are many. A Rwandese for
example needs food and wants rice, fish, meat
or bread. Although he wants rice for example,
he may still want Tanzania rice, Thailand rice;
he wants meat but he may still want pork,
chicken or beef. 

prospernkuru@yahoo.fr Intern in Trac Plus

• If a marketer therefore does a good job of
identifying consumer “needs” and expanding
such into specific consumer “wants”,
quantifying demand and/or market potential
will be an easy task!
• Project proponents must therefore measure
not only how many people want their product
but, more importantly, how many would
actually be willing and able to buy it.
prospernkuru@yahoo.fr Intern in Trac Plus
• The most basic approach in identifying market
opportunity is to use some forecasting
techniques in order to assess the demand and
supply (D/S) situation in the future. The
forecasted demand-supply gap can then be
used as initial benchmark whether a firm
should produce the commodity or not (or
whether it should limit or further boost
production in the future).

prospernkuru@yahoo.fr Intern in Trac Plus

• Based on past statistical demand and supply
data, a historical trend can be established
which subsequently can be used to forecast
the future demand and supply situation. Let
me demonstrate how to prepare the D/S
forecasts using a simple regression analysis
(statistical straight line method).

prospernkuru@yahoo.fr Intern in Trac Plus

 An Illustration

• Given the historical trend of demand and

supply for product “Y”:
• Let us suppose this is demand and supply for
irish potatoes

prospernkuru@yahoo.fr Intern in Trac Plus

 Year Demand (000 Supply (000 Market gap
(x) MT) MT)
----------- (Yd) (Ys)
------------------ ------------------
------ ----
2013-0 14 10 4
2014-1 17 15 2
2015-2 18 16 2
2016-3 21 17 4
2017-4 25 20 5
2018-5 26 21 5

prospernkuru@yahoo.fr Intern in Trac Plus

• To forecast Demand and Supply (D/S) for the
next five years (2018-2022), the formula using
the statistical straight line would be:

prospernkuru@yahoo.fr Intern in Trac Plus

 For demand
 = a d + b dx
Yd =
 Forecasted demand
Where: Yd = (the dependent variable)
 
Y-intercept of the best-
ad = fitted trend line (demand)
(Regression Constant)
slope of the best-fitted
bd = trend line (demand)
  (Regression Coefficient)
Year number or time
x = (the independent
variable)
prospernkuru@yahoo.fr Intern in Trac Plus
 For supply
Ys = a s + bs x
 For Supply
= as + b sx
Ys
Forecasted supply
(the dependent variable)
as = Y-intercept of the best-
fitted trend line (supply)
slope of the best-fitted
bs =
trend line (supply)
Year number or time (the
x = independent variable
• To solve for Y-intercept and slope of D/S curve,
the following formula is applied:

prospernkuru@yahoo.fr Intern in Trac Plus

 For demand For supply
bd = xyd - nxyd Bs= xys - nxys
   
x2 - nx 2 x2 - nx 2
ad = as =
Ys - bx
Yd - bx
Where: bd = slope of the demand Where: bs = slope of the supply
curve curve
as = Y-intercept of the
ad = Y-intercept of the supply curve
demand curve
n = number of supply
N= number of demand observations (6 in our
observations (6 in our example)
example)

Dr. prospernkuru@yahoo.fr Intern in Trac

Plus
 Year Demand Supply
xyd xys x2
(x) (Yd) (Ys)
----------- ------------ ----------
--------- ------------ ------------
-
2013-0 14 10 0 0 0
2014-1 17 15 17 15 1
2015-2 18 16 36 32 4
2016-3 21 17 63 51 9
2017-4 25 20 100 80 16
2018-5 26 130 105 25
21
X=15 Yd=121 Ys=99 XYs=283 X2=55
XYd=34
X= Yd= Ys=99/6=16.5 6
15/6=2.5 121/6=20.1
N=6 6

prospernkuru@yahoo.fr Intern in Trac Plus

• Based on our formula for “slope” and “Y-
intercept” of D/S curve, let us now compute
for these variables:

prospernkuru@yahoo.fr Intern in Trac Plus

FOR DEMAND FOR SUPPLY
bd= xyd - nxyd Bs= xys - nxys
   
x2 - nx 2
x2 - nx 2
=
346 – 6 (2.5) (20.16) 283 – 6 (2.5) (16.5)
55 – 6 (2.5)2 55 – 6 (2.5)2
bd=
2.5 Bs=
2.03
ad = Yd - bdx
= 20.16 - 2.5 (2.5) as = Ys - bsx
ad = 13.9
= 16.5 - 2.03 (2.5)
as in =Trac Plus11.4
prospernkuru@yahoo.fr Intern
To forecast demand therefore; To forecast supply therefore;
 
Yd = 13.9 + 2.5 (x), hence for year 6 Ys = 11.4 + 2.03 (x), hence supply
to 10, demand forecasts would be: for year 6 to 10 would be:
   
2018 = 13.9 + 2.5 (6) = 28.9 2018 = 11.4 + 2.03 (6) = 23.6
2019 = 13.9 + 2.5 (7) = 31.4 2019 = 11.4 + 2.03 (7) = 25.6
2020 = 13.9 + 2.5 (8) = 33.9 2020 = 11.4 + 2.03 (8) = 27.6
2021 = 13.9 + 2.5 (9) = 36.4 2021 = 11.4 + 2.03 (9) = 29.7
2022 = 13.9 + 2.5 (10) = 38.9 2022 = 11.4 + 2.03 (10) = 31.7
 

prospernkuru@yahoo.fr Intern in Trac Plus

• Now, based on the D/S forecasts, Demand and
Supply gap is thereby summarized as follows:

prospernkuru@yahoo.fr Intern in Trac Plus

Year Projected Projected Demand
Demand of Supply of and Supply
Product Y Product Y Gap (000
(000 MT) (000 MT) MT)

2018 28.9 23.6 5.3

2019 31.4 25.6 5.8
2020 33.9 27.6 6.3
2021 36.4 29.7 6.7
2022 38.9 31.7 7.2

prospernkuru@yahoo.fr Intern in Trac Plus

• Guided by the demand-supply gap, you are now in a position to analyze
whether there is still a demand for product Y. You may notice that there
will be unfilled demand for the next 5 years, ranging from 5.3 to 7.2
thousand metric tons per year. Based on this, you may now start
planning for your own creative and workable strategies to fill this up.
Should your project aim to totally fill this up? Or you will aim for a
certain market share only? What would be your project’s production
capacity then? Should you still want to capture a larger market share
beyond the demand and supply gap, what would be your marketing
strategies then? How are you going to compete with your existing
competitors anyway? These are the common questions that you have to
answer now if you wish to put up a project that would produce “product
Y”! At least you have a guide now on how to tap this market opportunity.

prospernkuru@yahoo.fr Intern in Trac Plus

 Investment decisions based on the demand
and supply forecasts
a) If demand and is equal to supply, the market
is saturated and the good decision would be
not to invest
b) If forecasted supply is greater than
forecasted demand, it means there is market
surplus. The project in such situation is not
worth investing

prospernkuru@yahoo.fr Intern in Trac Plus

• C) when the forecasted demand is greater
than forecasted supply, a decision will be
made to invest in the project if there will still
be a market gap after we have entered the
market. In such a situation , the business is
worth investing.
• We decide to invest in the business

prospernkuru@yahoo.fr Intern in Trac Plus

 Activity
• Suppose we are planning to grow Irish potato
on 500ha in Burera district. There are 2
agricultural seasons. Productivity is 5tons per
ha.
• Based on the forecasted market gap and
annual production capacity, should the
company invest in this project?

prospernkuru@yahoo.fr Intern in Trac Plus

 4. Commodity System Analysis
• Commodity system analysis used to refer to the
overall group of economic agents (or the relevant
activities of those agents) that contribute directly to
the determination of a final product. Thus the chain
encompasses the complete sequence of operations
which, starting from the raw material, or an
intermediate product, finishes downstream, after
several stages of transformation or increases in
value, at one or several final products at the level of
the consumer.
prospernkuru@yahoo.fr Intern in Trac Plus
5. Analysis of Overall Development Plans

 
• The basic rationale for projects is the
attainment of set objectives, which are explicit
in the development plans. Hence, economic
development plans, whether national or
regional, are usually good sources of project
ideas. Project ideas may also come from the
broad development strategies contained in
these plans.
prospernkuru@yahoo.fr Intern in Trac Plus
 6. Sector Studies

Project ideas likewise emerge from

comprehensive surveys of sector needs and
opportunities. Such surveys generally indicate
the thrust of the sector.

prospernkuru@yahoo.fr Intern in Trac Plus

 7. Analysis of Existing Programs

Many project proposals are likewise the result of

firm requests to extend existing programs,
either in similar projects or in relation to other
existing or proposed projects.

prospernkuru@yahoo.fr Intern in Trac Plus