Generation And Screening Of Project Ideas

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 ObjectivesCost reductionProductivity improvement Increase in capacity utilization Improvement in contribution marginExpansion 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 sectorGovernmental sector Technological sectorSocio-demographic sectorCompetition sectorSupplier 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 Model

Profit potential of an industry depends on the combined strength of the following five basic competitive forces:-

Threats of new entrantsRivalry among existing firmsPressure from substitute productBargaining power of buyerBargaining power of seller

Forces Driving Industry CompetitionPotentialEntrants

Suppliers

Substitutes

Buyers

THE INDUSTRYRivalry Among Existing Firms

Threats OfNew Entrants

Bargaining Power Of Suppliers

Bargaining Power Of BuyersThreats Of

SubstituteProducts

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