Chapter 3 Generation and Screening of Project Ideas

CHAPTER 3 GENERATION AND SCREENING OF PROJECT IDEAS

OUTLINE •

Generation of ideas

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Monitoring the environment

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Corporate appraisal

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Profit potential of industries : Porter model

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Scouting for project ideas

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Preliminary screening

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Project rating index

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Sources of positive net present value

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On being an entrepreneur 

Generation of Ideas o stimulate the flo! of ideas" the follo!ing are helpful •

S#O analysis

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Clear articulation of objectives

•

$ostering a conducive environment

Business Eniron!ent   i c   m   n o  o  c  % e  o   i  c   S o

G  o  v  e  r  n m  e n  t  a l  

      l     a     c       i     g       o       l     o     n       h     c     e       

 C       o    m      p     e     t i           t o         r   

S  u   p  p  l  i  e  r  

 i c  h  p  a  r  G e o g

Cor"orate A""raisa#

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Mar&eting and distribution

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Production and operations

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'esearch and development

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Corporate resources and personnel

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$inance and accounting

Too#s for Identif$in% Inest!ent O""ortunities here are several tools or frame!or&s that are helpful in identifying promising investment opportunities( he more popular ones are: •

Porter model

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)ife cycle approach

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*xperience Curve

Porter &ode# +ccording to Michael Porter the profit potential of an industry depends on the combined strength of the five basic competitive forces as sho!n belo!  Forces Driving Industry Competition Potentia# Entrants T*reat of Ne+ Entrants

Su""#iers

Bar%ainin% Po+er of Su""#iers

THE INDUSTR' Ria#r$ A!on% E(istin% Fir!s

T*reat of Su)stitute Produ,ts Su)stitutes

Bar%ainin% Po+er of Bu$ers

Bu$ers

Life C$,#e A""roa,* Many industrial economists believe that most products evolve through a life cycle that has four stages:

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Pioneering stage

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'apid gro!th stage

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Maturity and stabilisation stage

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,ecline stage

-nvestment in the pioneering stage" per se" may have a lo! return and negative .P/( 0o!ever" it may create options for participating in gro!th(

Most products evolve through a life cycle( he broad stages and the investment returns in these stages are as follo!s: Stage 



  Pioneering

'apid gro!th

Investment Return 

May have negative .P/  but may create options for participating in gro!th stage



Positive .P/ .P/ 1 neutral



  Maturity





  ,ecline



  .egative

E("erien,e Cure T*e e("erien,e ,ure s*o+s *o+ t*e ,ost "er unit )e*aes +it* res"e,t to t*e a,,u!u#ated o#u!e of "rodu,tion

233             .        e             u    #     a                 t     n     e         s      e     r            P             -                           t i     n     u     r     e         "               t         s          o             C

63 73 53 23 43 53

63

A,,u!u#ated o#u!e of "rodu,tion

T*e /e$ fa,tors t*at ,ontri)ute to de,#ine in unit ,ost +it* res"e,t to t*e a,,u!u#ated o#u!e of "rodu,tion are #earnin% effe,ts0 te,*no#o%i,a# i!"roe!ents0 and e,ono!ies of s,a#e

S,outin% for Pro1e,t Ideas •

+nalyse the performance of existing industries

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*xamine the inputs and outputs of various industries

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'evie! imports and exports

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Study plan outlays and governmental guidelines

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)oo& at the suggestions of financial institutions and development agencies

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-nvestigate into local materials and resources

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+nalyse economic and social trends

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Study ne! technological developments

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,ra! clues from consumption abroad

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*xplore the possibility of reviving sic& units

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-dentify unfulfilled psychological needs

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+ttend trade fairs

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Stimulate creativity for generating ne! product ideas

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0ope the chance factor !ill favour you

Pre#i!inar$ S,reenin% Compatibility !ith the promoter  Consistency !ith governmental priorities +vailability of inputs +de8uacy of mar&et 'easonableness of cost +cceptability of ris& level

Pro1e,t Ratin% Inde( T*e ste"s ino#ed in deter!inin% t*e "ro1e,t ratin% inde( are as fo##o+s2 •

-dentify factors relevant for project rating

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+ssign !eights to these factors 9 the !eights are supposed to reflect their relative importance

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'ate the project proposal on various factors" using a suitable rating scale 9ypically a ;%point scale or a •

Personal aspirations

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=usiness sustainability and si?e

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olerance for ris& 

,o - have the right strategy> •

Clear definition

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Profitability and potential for gro!th

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,urability

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'ate of gro!th

Can - executive the strategy •

'esources

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Organisational infrastructure

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he founder@s role

>ua#ities and Traits of a Su,,essfu# Entre"reneur -t appears that a successful entrepreneur has the follo!ing 8ualities and traits : #illingness to ma&e sacrifice )eadership ,ecisiveness Confidence in the project Mar&eting orientation Strong ego Open%mindedness

On Entre"reneurs*i" +n internationally ac&no!ledged authority on development economics" .obel )aureate Sir +rthur )e!is commented as follo!s on the role of entrepreneurship(

“ I have devoted a lifetime to the study of developing economies. I have examined strategies of development, the role of  foreign trade, of savings and investment, the most helpful role of government, and a myriad of other factors. I am now convinced that nothing matters more than the work ethic and entrepreneurial spirit of the population.”

SU&&AR' 

-dentification of promising investment opportunities re8uires imagination" sensitivity to environmental changes" and a realistic assessment of !hat the firm can do(

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o stimulate the flo! of investment ideas" the follo!ing are helpful: 9i S#O analysis" 9ii clear articulation of objectives" and 9iii conducive climate(

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he business environment !hich needs to be monitored regularly to identify investment opportunities" may be divided into six broad sectors: economic sector" government sector" technological sector" socio%demographic sector" competition sector" and supplier sector(

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+ realistic appraisal of corporate strengths and !ea&nesses is essential for identifying investment opportunities !hich can be profitably exploited( he broad areas of corporate appraisal are: mar&et and distribution" production and operations" research and development" corporate resources and personnel" and finance and accounting(



+ccording to Michael Porter the profit potential of an industry depends on the combined strength of the follo!ing five basic competitive forces 9i threat of ne! entrants" 9ii rivalry among existing firms" 9iii pressure from substitute products" 9iv bargaining po!er of buyers" and 9v bargaining po!er of sellers( Good project ideas 1 the &ey to success are elusive( So a !ide variety of sources should be tapped to identify them(



-t is possible to develop a long list of project ideas( $or the preliminary screening of these ideas" the follo!ing aspects may be loo&ed into: compatibility !ith the  promoter" consistency !ith governmental priorities availability of inputs" ade8uacy of mar&et" reasonableness of cost" and acceptability of ris& level( #hen a firm evaluates a large number of project ideas regularly" it may be helpful to streamline the process of preliminary screening by employing a project rating index(

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-t appears that there are six main entry barriers !hich result in positive .P/  projects: economies of scale" product differentiation" cost advantage" mar&eting reach" technological edge" and government policy(

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*very entrepreneur must ans!er the follo!ing 8uestions: +re my goals !ell defined> ,o - have the right strategy> Can - execute the strategy>



-t appears that a successful entrepreneur has the follo!ing 8ualities and traits: !illingness to ma&e sacrifices" leadership" decisiveness" confidence in the project" mar&eting orientation" and a strong ago(