Entrepreneurship (Project identification)

 A Project is a combination of human and non-human resources put together in a

temporary organization to achieve a specified purpose.

 Project is a system involving co-coordination of a number of interrelated activities to

achieve a specific objective.

PROJECT CYCLE Project cycle has five stages – identification, formulation, appraisal,
implementation and monitoring and evaluation.

(i) Identification: Identification could be from several sources: progressive farmers,

entrepreneurs, technical experts, local leaders, bankers, mass media, extension
agencies and national policies and plans.
(ii) Formulation: Preparation of feasibility study is the first step in analysis. Advanced
techniques of project planning like Programme Evaluation and Review Techniques
(PERT) and Critical path Method (CPM) are used in capital intensive and complex
project and those with longer gestation period (the period between starting of
implementation of the project and income generation).
(iii) Appraisal: After preparation, every project is appraised by an independent agency.
This includes analysis and scrutiny of each and every aspect, details and assumptions
made in the project. Generally banks have to undertake the appraisal of project
before financing. The appraisal is also assigned to specialized agencies in case of
complex project. The appraisal is conducted from several aspects like technical,
financial, commercial, managerial, economic, distributive and environmental. Even
within financial appraisal, there are various types of analysis.
(iv) Implementation: Implementation basically means translating the proposal into a
ground level project. The phases of the implementation are:
a) Pre development phase: this involves getting registration, licenses and loan
disbursement,
b) Development phase: construction of structures and starting up of production, and
c) Operational phase : starts with production and concludes when the economic life
of the project comes to an end.

(v) Monitoring and Evaluation: The final phase in project cycle is the monitoring and
valuation. Monitoring keeps track of the project, usually done by collecting certain performance
indicators about the project to check whether the project is performing according to the plan,
identifying problem areas and finding possible solutions. There are two types of monitoring which
banks undertake:

a) Desk monitoring based on collected data and

b) Field monitoring, based on actual field visit. Evaluation is conducted for the purpose of
learning lessons of success and failure from the project. There are several organizations (like NABARD
or training establishments) which conduct such evaluation studies and publish them for wider
circulation.
 PROJECT IDENTIFICATION Project identification is the first step of a new venture. A right
direction may enable an entrepreneur to scale new height. Otherwise, he has to undergo a number
of hurdles in his way. It is therefore, very crucial to entrepreneurs to identify project. Project
identification is concerned with collection, compilation and analysis of economic data for the
eventual purpose of locating possible opportunities for investment.

STEP 1 : SEARCH OF NEW IDEA / GENERATION OF IDEAS / SEARCH OF BUSINESS

OPPORTUNITY: The search for promising project idea is the first step towards establishing a
successful venture. Identification of such opportunities requires imagination, sensitivity to
environmental changes and realistic assessment of what the firm can do. Entrepreneur takes the
help many tools to generate new ideas like:

(i) SWOT Analysis: SWOT is an acronym for Strength, Weaknesses, Opportunities and
Strength. On analyzing these factors one can come up with new ideas on:  Cost Reduction 
Productivity improvement  Increase in capacity utilization  Improvement in contribution margin 
Expansion into promising fields

(ii) Brainstorming: It is probably the most well known and widely used for creative idea
generation. It is an unstructured process for generating all possible ideas within a limited
time frame through the spontaneous contributions of participants. The participants can be
the entrepreneur’s family members, friends, business partners, hired experts etc.

(iii) Other constrains:  Analyse the performance of Existing Industries  Examine the inputs
and outputs of various Industries  Review Imports and Exports  Study Plan Outlays and
Government Guidelines  Look at the suggestions of Financial Institutions and
Developmental Agencies  Investigate Local Materials and Resources  Analyse Economic and
Social Trends Internal factors Strengths  Political support  Funding available  Market
experience  Strong leadership  Any foreign collaboration  Industrial contacts Weaknesses
 Project is very complex  Likely to be costly(huge investment)  Lack of experience  Lack of
trained personnel.  Inability to forecast market trends. Externa l factors Opportunities 
Project may improve local economy  Competitor weakness.  Project will boost company's
public image  Government & other incentives.  New technology(create new market)
Threats  Environmental constraints  Time delays  New Technology( make the previous
product outdated)  National and global economic conditions.  Stiff competition in market.
Explore the Possibility of Reviving Sick Units

STEP 2 : SELECTION OF BUSINESS OPPORTUNITY/ SHORT LISTING IDEAS /PRELIMINARY SCREENING:

The entrepreneur might have searched a number of business opportunities and there is a need to
select the best one idea which can be carried on to achieve the objective of entrepreneur. Below
mention points helps the entrepreneur to select the best idea:

1. Compatibility with the Promoter The idea must be compatible with the interest, personality, and
resources of the entrepreneur. According to Murphy, a real opportunity has three characteristics: i) It
fits the personality of the entrepreneur (abilities, training etc) ii) It is accessible to him iii) It offers
him the rapid growth and high returns
2. Consistency with Governmental Priorities: i) Is the project consistent with national goals and
priorities? ii) Are there any environmental effect contrary to governmental regulation? iii) Can the
foreign requirements of the project be easily accommodated? iv) Will there be any difficulty in
obtaining the licenses for the project?

3. Availability of Inputs: i) Are the capital requirements of the project within manageable limits? ii)
Can the technical know-how required for the project can be obtained? iii) Are the raw materials
required for the project available domestically at reasonable cost? iv) Is the power supply for the
project reasonably obtainable from external sources?

4. Adequacy of the market i) Total present domestic market ii) Competitors and their market shares
iii) Export market iv) Quality-price profile of the product vis-à-vis competitive product v) Sales and
distribution system vi) Projected increase in consumption vii) Patent protection

5. Acceptability of Risk Level i) Vulnerability to business cycles ii) Technological Changes iii)
Competition from substitutes iv) Competition from Imports v) Governmental control over price

6. Socio-Demographic Sector i) Population trends ii) Income distribution iii) Educational Framework
iv) Attitudes toward consumption and investment

STEP : 3 ASSESSMENT OF VIABILITY / PROJECT APPRAISAL / FEASIBILITY STUDY During the process of
project appraisal a feasibility study may be undertaken to establish the justification of the identified
project in all of its relevant dimensions, including its technical, economic and financial viability,
environmental compliance and social acceptability; as well as its conformity with the national
development objectives and priorities and the relevant policy, legal and regulatory framework.
Feasibility study is to initially identify the following aspects:

i. Technical soundness of the project

ii. Administrative feasibility of the project
iii. The economic and financial viability of the project proposal
iv. Considerations of customs and traditions of project benefactors, issues of
compatibility The results of a feasibility study influences decisions to commit or not
commit scarce resources to a given project .

Feasibility Analysis:

(I) MARKET ANALYSIS Market analysis is concerned primarily with two questions:

 What would be the aggregate demand of the proposed product/service in the

future?  What would be the market share? To answer the above questions, the market
analyst requires a wide variety of information and appropriate forecasting methods. The
kinds of information required are:  Consumption trends in the past and the present
consumption level  Past and present supply position  Production possibilities and
constraints  Imports and exports  Structure of competition  Cost structure  Elasticity of
demand  Consumer behaviour, intentions, motivations, attitudes, preferences, and
requirements  Distribution channels and marketing policies in use  Administrative,
technical, and legal constraints

(II) TECHNICAL ANALYSIS Analysis of the technical and engineering aspects of a project needs
to be done continually when a project is formulated. The important questions raised in
technical analysis are:  Whether the preliminary tests and studies have been done? 
Whether the availability of raw materials, power, and other inputs has been established? 
Whether the selected scale of operation is optimal?  Whether the production process
chosen is suitable?  Whether the equipment and machines chosen are appropriate? 
Whether the auxiliary equipments and supplementary engineering works have been
provided for?  Whether provision has been made for the treatment of effluents?  Whether
the proposed layout of the site, buildings, and plant is sound?  Whether work schedules
have been realistically drawn up?  Whether the technology proposed to be employed is
appropriate from the social point of view?

(III) FINANCIAL ANALYSIS

The primary aim of financial analysis is to determine whether the project satisfies the
investment criteria of generating acceptable level of profitability. The aspects which have to
be looked into while conducting financial analysis are:  Investment outlay and cost of
project  Sources of financing  Cost of capital  Projected profitability  Break-even point 
Cash flows of the project  Projected financial position  Level of risk

(IV) ECONOMIC ANALYSIS

Economic analysis, also referred to as social cost benefit analysis, is concerned with judging a
project from the larger social point of view. The questions to be answered in social cost
benefit analysis are:  What are the direct economic benefits and costs of the project
measured in terms of shadow (efficiency) prices and not in terms of market prices?  What
would be the impact of the project on the distribution of income in the society?  What
would be the impact of the project on the level of savings and investment in the society? 
What would be the contribution of the project towards the fulfillment of certain merit wants
like self- sufficiency, employment, and social order?

(V) ECOLOGICAL ANALYSIS

Ecological analysis should be done particularly for major projects which have significant
ecological implications (like power plants and irrigation schemes) and environment-polluting
industries (like bulk drugs, chemicals, and leather processing). The key questions raised in
ecological analysis are:  What is the likely damage caused by the project to the
environment?  What is the cost of restoration measures required to ensure that the damage
to the environment is contained within acceptable limit