CHAPTER 3

PROJECT IDENTIFICATION
I. General
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.
II. 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
 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.
PRE-IDENTIFICATION
“Pre-identification” is an important prelude to protect identification. The pre-identification stage
involves surveying, reviewing, inventorying, and analysis of strategies and policies, data about
natural resources, and socio-economic variables. This stage is a synonym to opportunity study
under the UNIDO cycle, which is very important phase in project planning. Unfortunately, this
aspect of planning is either totally ignored or for which inadequate resources are provided in
most developing countries. There are a number of reasons for disregarding this aspect in project
planning:
 First and, perhaps, most important of all is the sheer ignorance: to learn its importance
and to identify ways of carrying out surveys; inventorying of resources; collection,
organization, and integrating data; and analyzing the information cost-effectively and
generate useful information.
 Secondly, such work tends to be regarded as an extensive task resulting in excessive
overhead costs. Moreover, often, funds for such activities are expended in tight schedules
during end of budget period.

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  Thirdly, much of the work has tended to be time consuming and hence, people lack the
initiatives to start it, unable to foresee and measure its benefits, and not patient to wait for
results.
Nowadays, modern technology is revolutionizing the survey methods and the means for carrying
out synthesis and analysis, speeding up some processes, reducing the costs of surveys, and
providing new ways of looking at things. Identifying existing gaps, generate useful information,
accomplishing analysis of data, and throwing up ideas for possible projects is a pre-requisite to
sound project formulation. In addition, project identification must be carried out within national,
regional, and Sectorial development framework and policies including pricing, taxation, and
subsidy. Otherwise, much time and effort might be wasted in the process of identifying and
preparing projects that might be inconsistent with existing policies, strategies, and priorities and
hence, might turn out to be unfeasible by the end of the day.
Thus, those who are responsible for identifying projects need to be aware of accepted strategies
and policies as well as to be in position to feedback information to those who are responsible for
formulating policies.
PROJECT IDENTIFICATION
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 micr-planning 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.
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.

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3.2. SOURCES OF PROJECT IDEAS
3.2.1. 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.
 General surveys, resource potential surveys, regional studies, master plan, and statistical
publications, which indicate directly or indirectly investment opportunities
 Constraints on the development process due to 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

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  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.

3.2.2. Micro Source of Project Ideas

At the micro-level, many institutions/entities could generate project ideas, among which the
following are the main ones:
 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 from their efficient use
 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)

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  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
 Adequacy of market
 Reasonableness of costs
 Acceptability of risk level

During preliminary selection, the analyst should eliminate project proposals that:
 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 ill-defined),
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.

PROCESS OF IDENTIFICATION
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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.

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:

APPROACHES ASPECTS CONSIDERATIONS

Area studies  Identification of  backward/marginalized

opportunities in given area as areas
localities, regions, states, etc
 To bring balanced
development

Industry studies  Identification of  Development plans &

opportunities in the programs
industrial sector  Investment policy
 Specific marketable product  Economic policy
 Diversification
 Import substitution
 Export possibilities

Resource based  Opportunities in exploiting  Industry policy

studies natural resources  Other policies & priorities
 natural resource
analysis
 Import substitution

Sector analysis/  satisfaction of social needs:  Sectorial strategies

Studies Agricultural, manufacturing,  Sectorial priorities
health, education, etc  Existing unsatisfied needs
 Sectorial development
level

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 Project Idea Generation Process

1. Survey & Review of Endowments and Facilities (infrastructure):

Surveying, reviewing and analysis of existing policies, resource endowments (donation),
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

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.

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 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

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.
 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.

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 Project Ideas

Survey of needs Survey of key Survey of resources

development problems

 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.

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

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
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  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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