CHAPTER THREE
PROJECT IDENTIFICATION
3.1. Meaning of Project Identification
Project Identification is the process of searching for and subsequently finding
potential projects that could feasibly generate benefits in excess of costs accruing to
the society and contributing towards the attainment of specified development
objectives. Project identification is made in rather general terms with broader scope at
the first glance and then, the idea will be progressively developed. In the continuum,
even alternative versions of the same may be conceived.
The search for promising project ideas is the first step towards establishing a
successful venture. The key to success lays 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 merit further examination and appraisal. project
identification is the process identification should be an integral part of the micrplanning exercise, with Sectorial information and strategies being the main sources of
project ideas.
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, in general, should aim at overcoming constraints on the national development
efforts, be it material, human, or institutional constraint, or at meeting unsatisfied
needs, and demand for goods and services. Constraints, needs, and demands should
be interpreted broadly to include, for instance, foreign exchange constraints that
might indicate the need to undertake projects for export promotion or import
substitution.
Who Identify Projects?
The following groups may identify projects:
 Small producers organizations/producers’ unions
 Large scale individual private sector producers
 Product marketing organizations
 Private sector companies (local/multinational)
 State owned enterprises & organizations
 Government ministries, authorities, agencies, and commissions
 Development banks, local as well as foreign, and international development
agencies
 Other aid agencies and self aid associations
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Local governments; state, regional, and sub-regional authorities
Local political & pressure groups such as oppositional parties
NGO’s: Local or international
Credit institutions & cooperatives
Credit unions, saving and loan associations, saving banks, commercial banks,
etc.
The variety of projects makes it impossible to prepare an exhaustive list of sources
from where project ideas emanate; but much depending on the experience and
imagination of those entrusted with the task of initiating development project. In
general, one can distinguish two levels where project ideas are born: the macro-level
and micro-level.
3.2. Sources of Project Ideas
Macro Source of Project Ideas
Among the various institutions, and sources, the following are the most important
ones in developing countries at the macro level:
 Federal/central or Regional Government
 Bilateral and Multilateral Agreement
 International Development Agencies.
In general, in developing countries, the government remains to be the major source of
project for the reason that it:
A. Has the necessary resource for the task
B. Has unlimited access to data and information
C. Has the required facilities to conduct survey, studies and reviews
D. Is fully familiar with the development objective priorities and strategies, i.e. the
development goals, priorities, and strategies often are not clear to private
groups. [Ambiguity exists regarding the development goals or it may not be in
their best interest]
Specifically, project ideas emerge from the following macro sources:
 National policies, strategies, and priorities as may be enunciated(or articulated)
by government from time to time
 National, Sectorial, sub-Sectorial, or regional plans and strategies supplemented
by special studies, sometimes called opportunity studies, conducted with the
explicit aim of translating national, Sectorial, sub-Sectorial, and regional
programs into specific projects.
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 General surveys, resource potential surveys, regional studies, master plan, and
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statistical publications, which indicate directly or indirectly investment
opportunities
Constraints on the development process due o shortage of essential
infrastructure facilities, problems in the balance of payments, etc.
Government decisions to correct social and regional inequalities or to satisfy
basic needs of the people through development projects.
A possible external threat that necessitates projects aiming at achieving, for
example, self-sufficiency in basic material, energy, transportation, etc
Unusual events such as droughts, floods, earthquakes, hostilities, etc
Government decisions to create project-implementing capacity in such areas as
construction, etc.
At the macro-level, project ideas can also originate from multilateral or bilateral
agreements, development agencies, and as a result of regional or international
agreements in which the country participate
In addition, inspirations of individuals and institutions, workshops, and
development experiences of other nations may point to some interesting
project ideas in the local context.
Micro Source of Project Ideas
At the micro-level, many institutions/entities could generate project ideas, among
which the following are the main ones:
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Private and Public Enterprise
Local groups or Organizations
Consumer groups and Associations
Financial Institutions/ Credit Associations
Cooperatives, Farmers’ Unions, etc
New technology Suppliers.
There are quite diverse micro-sources of project ideas that emanate from:
 The identification of unsatisfied demand or needs
 The existence of unused or underutilized natural or human resources and the
perception of opportunities fro their efficient use
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 The need to remove shortages in essential materials, services, or facilities that
constrain development efforts
 The initiative of private or public enterprises in response to incentives provided
by the government
 The necessity to complement or expand investments previously undertaken
 The desire of local groups or organizations to enhance their economic status
and improve their welfare
 Analyze the performance of existing industries
 Examine the inputs and outputs of various industries
 Review imports and exports
 Look at the suggestions of financial institutions and development agencies
 Investigate local materials and resources
 Analyze Economic and Social Trends
 Study new Technological Developments
 Draw clues from consumptions abroad
 Explore the possibility of reviving sick units
 Attend trade-fairs (trade promotion)
 Project proposals may also come from multinational firms, in response to
government investment incentives or else when such firms consider production
within the country is a better way to secure a substantial share of the domestic
market for their products.
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 screening by
experienced professionals who could also modify some of the proposals. At this stage,
the screening criteria are vague and rough, that become specific and refined as project
planning advances.
During the preliminary screening to eliminate ideas, which prima facie are not
promising, it is required to look into the aspects such as:
 Compatibility with the promoter
 Consistency with government priorities
 Availability of inputs
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 Adequacy of market
 Reasonableness of costs
 Acceptability of risk level
During preliminary selection, the analyst should eliminate project proposals that:
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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.
Obviously, since the criteria tend to be somewhat nebulous (vague, imprecise, and illdefined), much depends on the experiences and sense of objectivity of the
professionals applying them. It is, however, necessary to conduct this screening, even
with indistinct criteria, in order to reduce the number of project alternatives to a
manageable level to which more work and time will be devoted. Indeed, project
planning can be viewed as a process of elimination, i.e. elimination of interior
alternatives. 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.
3.3. Process of Project Identification
Generally, an idea of projects may come to our mind from observing existing
opportunities and problems in a given context. When we are more concerned about
project identification, the formal task of conducting identification studies,
(opportunity studies), is one of the best available option to project planners, which is
critically important to generate and/or come up with useful information.
3.3.1. Objective of identification studies:
To collect sufficient data and generate beneficial information concerning the background, technical,
economic, social, and environmental aspect of a potential project.
The following table presents the approaches, aspects, and considerations in project
identification studies:
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APPROACHES
Area studies
Industry studies
Resource
studies
Sector
Studies
based
analysis/
ASPECTS
 Identification
of
opportunities in given
area as localities, regions,
states, etc
 To
bring
balanced
development
 Identification
of
opportunities in the
industrial sector
 Specific
marketable
product
 Diversification
 Import
substitution
 Export possibilities
 Opportunities
in
exploiting
natural
resources
 natural
resource
analysis
 Import
substitution
 satisfaction of social
needs:
Agricultural,
manufacturing,
health,
education, etc
CONSIDERATIONS
 backward/marginalized
areas
 Development plans &
programs
 Investment policy
 Economic policy
 Industry policy
 Other
policies
priorities
&
 Sectorial strategies
 Sectorial priorities
 Existing
unsatisfied
needs
 Sectorial development
level
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3.3.2. Project Idea Generation Process
1. Survey & Review of Endowments and Facilities (infrastructure):
Surveying, reviewing and analysis of existing policies, resource endowments,
and socio-economic variables.
 Natural resource: review of the natural resource endowments of the
country.
 Human resource : review of educational standard and facilities
 Socio-economic variables : review of various socio economic factors
such as :
 Housing facilities & standard
 Utilities services
 health and nutrition services
 income distribution
2. Field survey and interview:
Asking people what goods or services they want in order to identify their
unsatisfied needs.
Asking people what their problems are.
Asking the public unit closest to the people at the grass-root level about
what the needs of the people in the community are.
3. Observing and analysis of prevailing situation:
 Observing and examining current demand & supply situation for
goods/services
 Examining past& future trends for goods and services
 Observing possibilities for improvements/ quality & quantity
 Observing opportunities & threats in the invention & introduction of new
technology, etc.
4. Deliberations, discussions, and trainings:
o Discussions and deliberations in seminars, workshops, conferences both
local and international
o Meeting at different levels within the organization
o Educational & training programs
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5. Brainstorming:
A group of people suggesting different ideas regarding future activities, very
quickly, before analyzing and/or considering the source of the idea more
carefully.
6. Exposure to publication & media:
 Reading various publications and media: journals, magazines, newsletter,
newspapers, etc
 Audio-visual media (discussions, reports etc)
 Visual media (cinema, video)
7. Informal discussions and meetings:
 Get together meeting
 Friendship meetings (fraternal associations)
Feeling of feasibility:
The observation studies, discussions, etc made in accordance with the above manner
could ultimately lead to the generation of project ideas. The individuals or entities
generating the idea develop a kind of feeling that the project ideas could be feasible.
Those project ideas that seem to be feasible would then become the basis for
identification of potential projects that:
 Could be thoroughly investigated & assessed
 Need be supported by tangible and factual evidences
3.3.3. Approaches to Project Idea Generation
Broadly speaking, project ideas could be generated through the following two
approaches:
Top-Down Approach (Macro level)
It is an approach whereby individuals at the micro level, or grass root level, are not
involved in the process of project idea generation.
 Projects are identified at the higher planning (or macro) level and implemented
at the decision of officials at the top.
 It is based on the national plan and strategies.
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 The government need not go down because the problem might be
understandable.
 However, it may not relate to the existing reality in particular vicinity.
 Such projects may encounter resistance & implementation difficulties due to
lack of interest by the society.
 Such projects are implementation entities at given local area, which may not be
consistent with the needs in the context and hence, may not necessarily reflect
the realities in the locality.
Bottom-Up Approach (Micro level)
A bottom-up idea generation process requires base line surveys, which is based on the
realities existing in different localities.
Project Ideas
Survey of needs
Survey of key
development problems
Survey of resources
 May get community support, successfully implemented, and the potential
benefits might easily be visualized (seen) by the society. This may help to
create goodwill and positive images towards the institution.
3.4. Steps in Project Identification
Step 1: Generation of project ideas.
Step 2: Screening project ideas: giving priorities based on resources, compatibility to
objectives, potential to enhance competitiveness, and value adding in the
society.
Step 3: Identification of candidate projects passing the screening criteria
Step 4: Propose for pre-feasibility/ feasibility studies
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3.5. Problems in Project Identification
 Ambiguity about the development objectives of the country:
 People may not clearly identify development goals
 development goal may not be well communicated
 may not be in the best interest of units or groups
 may not get full hearted acceptance from the public
 Priority issues in the existing development objectives:
 Conflict regarding the priorities set
 opposing views may result in lack of interest & commitment
 Differences in views regarding critical aspects of priority
 differences in prioritizing goals & objectives
 Limited information and data and obstacles in data/information flow
and accessibility:
 Data and information flow problem
 accessibility of data flowing
 limited data& information
 data may not be dependable(reliable) to use
 Conflict of interest between local beneficiary group: (i.e. some groups
may bear the cost and others may get the benefit)
 What are the costs & benefits of identified projects?
 Who bears the costs & benefits in the society?
 Is benefits accruing to other groups while the costs paid by a given
local group (unit)
 Mechanisms to compensate those bearing the costs
 Unless compensated, the consequences might be unfavorable, costly,
and severe as well.
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