GENERATION AND SCREENING OF PROJECT

IDEAS

VIVEK GOYAL

Topics To Be Discussed Generation Of ideas Monitoring The Environment Corporate Appraisal Profit Potential Of Industries : Porter Model Scouting of Project Ideas Preliminary Screening Project Rating Index Sources Of Positive Net Present Value On Being An Entrepreneur

Generation Of Ideas Most of the project

ideas involve combining existing fields of technology or offering variants of present product or services.

Stimulating The Flow of ideas SWOT Analysis Clear Articulation Of Objectives Cost reduction Productivity improvement Increase in capacity utilization Improvement in contribution margin Expansion into promising fieldA clear articulation and prioritization of objectives

helps in channelizing the efforts of employees and production them to think more imaginatively

Stimulating The Flow Of Idea Fostering The Conducive Climate

Monitoring The Environment Firm must systematically monitor the

environment and access its competitive abilities. For the purpose of monitoring, the business environment may be divided into six categories:-

Economic sector Governmental sector Technological sector Socio-demographic sector Competition sector Supplier sector

Economic Sector State Of The Economy Overall Rate Of growth Growth rate of primary , secondary

and tertiary sector Cyclical fluctuation Linkage with the world economy Trade surplus / deficit Balance payment situation

Governmental Sector Industry Policy Government Plans and Projects Tax Framework Subsidies, incentives and concessions Import and export policies Financing norms Lending conditions of financial

institutions and commercial banks

Technological Sector Emergence of new technologies Access to technical know how,

foreign as well as indigenous Receptiveness on the part of

industries

Socio-Demographic Sector Population trends Age shift in population Income distribution Education profile Employment Of Women Attitudes toward consumption and

investment

Competition Sector Number of firms in the industry and the

market share of the top few ( four or few) Degree of homogeneity and

differentiation among products Entry barrier Comparison with substitutes in term of

quality, price, appeal and functional performance

Marketing policies and practices

Supplier Sectors Availability and cost of raw materials

and sub assemblies Availability and cost of energy Availability and cost of money

Corporate Appraisal A realistic appraisal of corporate strength

and weakness is essential for identifying investment opportunities which can be profitably exploited. The broad and important aspects are:-

Marketing and Distribution Production and Operations Research and Development Corporate Resource And Personnel Finance and Accounting

Marketing and Distribution Market Image Product line Market Share Distribution network Customer Loyalty Marketing and distribution

Production And Operations Condition and Capacity of plant and

machinery Availability of raw materials, sub-

assemblies and powers Degree of vertical integration Location advantage Cost structure

Research and Development Research capabilities of the firm Track record of new product

development Laboratories and testing facilities Coordination between research and

operations

Corporate Resources and Personnel Corporate Image Clout with governmental and

regulatory agencies Dynamism of top management Competence and commitment of

employees State of industrial relations

Finance And Accounting Financial leverage and borrowing

capacity Cost of Capital Tax Situation Relations with shareholders and

creditors Accounting and control system Cash flow and liquidity

Profit Potential Of Industries: Porter ModelProfit potential of an industry depends

on the combined strength of the following five basic competitive forces:-

Threats of new entrants Rivalry among existing firms Pressure from substitute product Bargaining power of buyer Bargaining power of seller

Forces Driving Industry CompetitionPotentialEntrants

Suppliers

Substitutes

Buyers

THE INDUSTRY

Rivalry Among Existing

Firms

Threats OfNew EntrantsBargainin

g Power Of Suppliers

Bargaining Power Of BuyersThreats

OfSubstituteProducts

Threats Of New Entrants New entrants add capacity, inflate costs,

push prices down, and reduce profitability. If an industry faces the threat of new entrant, its profit potential would be limited. The threats from new entrants is low if the entry barrier confer an advantage existing firm and deter new entrants.

Threats Of New Entrants The new entrants have to invests substantial

resources to enter the industry Economies of scale are enjoyed by the

industry Existing firms control the distribution

channels, benefit from product differentiation in the form of brand image and customer loyalty

Switching costs- these are essentially one time costs of switching from the products of one supplier to another – are high

The government policy limits or even prevents new entrants

Rivalry Between Existing Firms Firms in an industry compete on the basis of

price, quality, promotion, service, warranties and so on. If the rivalry between the firms in an industry is strong, competitive moves and countermoves dampen the average profitability of the industry. The intensity of rivalry in an industry tends to be high when:-

Rivalry Between Existing Firms The number of competitors in the

industry is large At least a few firms are relatively

balanced and capable of engaging in a sustained competitive battle

The industry growth is sluggish, prodding firms