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