Generation of Ideas
Barring truly new ideas which are based on significant technological breakthroughs, most of the project ideas involve combining existing fields of technology or offering variants of present product or service.
The typical route may be described as follows –
- Someone with specialized technical knowledge.
- Someone other competence feels that he can offer a product or service which can cater to a presently unmet need.
- Serve a market where demand exceeds supply.
- Effectively compete with similar products or service because of certain favorable features like better quality or lower prices.
His ideas are endorsed by his associates who encourage him and even show willingness to collaborate with him on the proposal. Finally, he receives support from financial institutions and banks that approve his project and show readiness to finance it.
Scouting or Control or Spying for Project Ideas
Good project ideas the key to success is elusive. So, a wide variety of source should be tapped to identify them, here are some suggestions in this regard –
- Analyze economic and social trends – a study of economic and social trends is helpful in projecting demand for various goods and services. Changing economic conditions and consumer preference provide new business opportunities.
- Study new technological development – new products or new processes or technologies for existing products developed by research laboratories may be examined for profitable commercialization.
- Draw clues from consumption abroad – entrepreneurs willing to take risks may identify projects for the manufacture of products or supply of services which are new to the country but extensively used abroad.
- Attend trade fairs – national and international trade provide an excellent opportunity to get to know about new products and development.
- Stimulate creativity for generating new product ideas – new product ideas may be generated by thinking along the following lines – modification, reversal, magnification, adaptation and combination.
- Identify unfulfilled psychological needs – for well established, multi brand product groups like bathing soap, cosmetics, toothpaste e.tc the question to be asked is whether there are certain psychological needs of the customers which are presently unfulfilled.
- Analyze the performance of existing Industries – a study of existing industries in terms of their profitability and capacity utilization can indicate promising investment opportunities.
- Review import and exports – indigenous manufacture of goods currently imported is advantageous for several reasons: it improves the balance of payments situation, it generates employment.
- Investigate local materials and resources – project ideas may begin with an investigation into local resource and skills. Various ways of adding value to locally available materials may be examined. The skills of local artisans may suggest products that may be profitably produced and marketed.
- Look at the suggestions of financial institutions and developmental agencies
Preliminary screening
It is required to eliminate ideas which prima facie are not promising. For this purpose, the following aspect may be looked into.
- Compatibility with the promoter – The must be compatibility with the interest, personality and resources of the entrepreneur. According to Murphy, a real opportunity has three characteristics.
- It fits the personality of the entrepreneur.
- It is accessible to him.
- It offers him the prospect of rapid growth and high return on the invested capital.
- Consistency with the government priorities – The project idea must be feasible given the national and governmental regulatory framework. The questions to be raised in this context are –
- Is the project consistent with the national goals and priorities?
- Can foreign exchange requirement of the project be easily accommodated?
- Will there be any difficulty in obtaining the license of the project?
- Availability of input – The resources and input required for the project must be reasonably assured. To assess this, the following questions need to be answered-
- Are the capital requirements of the project within manageable limits?
- Can technical knowhow have required for the project is obtained?
- Adequacy of market – The size of the present market must offer the prospect of the adequate sales volume. To judge the adequacy of the market the following factors have to be examined -
- Export markets
- Patent projection
- Sales and distribution system
- Reasonableness of cost – The cost structure of the proposed project must enable it to realize an acceptable profit with a price. The following should be examined in this regard –
- Economics of scale
- Labour cost
- Factory Overheads
- Service cost
- Acceptability of risk level – In the assessment of risk a difficult task, indeed the following factors should be considered -
- Technological change
- Competition from imports
- Vulnerability of business cycle
Project Rating Index / Preliminary Evaluation
When a firm evaluates a large number of project ideas regularly, it may be helpful to streaming the process of preliminary screening. For this purpose, a preliminary evaluation may be translated into a project rating index.
The steps involved in determining the project rating index are as follows –
- Identify factors relevant for project rating
- Assign weights to these factors
- Rate the project proposal on various factors, using a suitable rating scale.
- For each factor, multiply the factor rating with the factor weight to get the factor score.
- Add all the factor score to get the overall project rating index.
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