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LECTURE –1

CONCEPT OF ENTREPRENEURSHIP,CHARACTERISTICS OF
ENTREPRENEURS
UNIT I
ENTREPRENEURSHIP

Entrepreneurship is a process undertaken by an entrepreneur to augment his business


interests. It is an exercise involving innovation and creativity that leads towards
establishing his/her enterprise. One of the qualities of entrepreneurship is the ability to
discover an investment opportunity and to organize an enterprise, thereby Contributing to
real economic growth. It involves taking of risks and making the necessary investments
under conditions of uncertainty and innovating, planning, and taking decisions so as to
increase production in agriculture, business, industry etc. Entrepreneurship is a composite
skill, the resultant of a mix of many qualities and traits - these. include tangible factors as
imagination, readiness to take risks, ability to bring together and put to use other factors
of production capital, labour, land, as also intangible factors such as the ability to
mobilise scientific and technological advances. A practical approach is necessary to
implement and manage a project by securing the required licences, approvals and finance
from governmental and financial agencies. The personal incentive is to make profits from
the successful management of the project. A sense of cost consciousness is even more
necessary for the long-term success of the enterprise. However, both are different sides of
the same coin.
Entrepreneurship lies more in the ability to minimise the use of resources and to put them
to_ maximum advantage. Without an awareness of quality and desire for excellence,
consumer acceptance cannot be achieved and sustained. Above all, entrepreneurship
today is the product of teamwork and the ability to create, build and work as a team. The
entrepreneur is the maestro of the business orchestra, wielding his baton to which the
band is played.

The Concept of Entrepreneurship

Entrepreneurship is the propensity of mind to calculate risks with confidence to


achieve a pre-determined business or industrial objective. In substance, it is the risk-
taking ability of the individual, broadly coupled with correct decision--making.

New Concept of Entrepreneur

The term “entrepreneur” has been defined as one who detects and
evaluates a new situation in his environment and directs the making of
such adjustments in the economic systems as he deems necessary. He
conceives of an industrial enterprise for the purpose, displays
considerable initiative, grit and determination in bringing his project to
fruition, and in this process, performs one or more of the following:
i. Perceives opportunities for profitable investments;
ii. Explores the prospects of starting such a manufacturing enterprise;
iii. Obtains necessary industrial licenses;
iv. Arranges initial capital;
v. Provides personal guarantees to the financial institutions;
vi. Promises to meet the shortfalls in the capital; and Co
vii. Supplies technical know-how.

Entrepreneurship may be defined in various ways, but the four key


elements involved in it are:
i. Innovation,
ii. Risk-taking,
iii. Vision, and
iv. Organizing skill.

All the four elements are inter-related and form a continuous process
in business. Entrepreneurial vision encompasses the relentless pursuit
for operational excellence, innovative technology and being responsive
to the needs of the market place.

Who is an Entrepreneur?

An entrepreneur is a person who organizes and manages a business


undertaking and assumes a risk for the sake of profit. Operating a
business takes certain skills. Few people have all the
skills needed to run a business, but they can compensate for their
weaknesses by hiring staff or consultants and by becoming more
knowledgeable through education or training.

Characteristics of Entrepreneurs
1. Mental Ability - It consists of intelligence and creative thinking. An
entrepreneur must be reasonably intelligent, and should have creative
thinking and must be able to engage in
the analysis of various problems and situations in order to deal with
them. The entrepreneur should anticipate changes and must be able to
study the various situations under which
decisions have to be made.

2. Clear Objectives - An entrepreneur should have a clear objective


as to the exact nature of the business, the nature of the goods to be
produced and subsidiary activities to be
undertaken. A successful entrepreneur may have the objective to
establish the product, to make profit or to render social service.
3. Business Secrecy - An entrepreneur must be able to guard
business secrets. Leakage of business secrets to trade competitors is a
serious matter, which should be carefully guarded against by an
entrepreneur. An entrepreneur should be able to make a proper
selection of his assistants.
4. Human Relation Ability - The most important personality factors
contributing to the success of an entrepreneur are emotional stability,
personal relations, consideration and tactfulness. An entrepreneur
must maintain good relation with his customers if he is to establish
relations that will encourage them to continue to patronize his
business. He must also maintain good relations with his employees if
he is to motivate them to perform their jobs at a high level of
efficiency. An entrepreneur who maintains good human relation with
customers, employees, suppliers, creditors and the community is much
more likely to succeed in his business that the individual who does not
practice good human relations.

5. Communication Ability - It is the ability to communicate


effectively. Good communication also means that both the sender and
the receiver understand each other and are being understood. An
entrepreneur who can effectively communicate with customers,
employees, suppliers and creditors will be more likely to succeed than
the entrepreneur
who does not.

6. Technical Knowledge - An entrepreneur must have a reasonable


level of technical knowledge. Technical knowledge is the one ability
that most people are able to acquire if they try hard.

Entrepreneurial Competencies

• Grasping opportunity
• Taking initiative
• Solving problems creatively
• Managing autonomously
• Taking responsibility for, and ownership of things
• Seeing things through
• Networking effectively to manage interdependence
• Putting things together creatively
• Using judgement to take calculated risk.

Entrepreneurial Attributes
• Achievement orientation and ambition
• Self confidence and self esteem
• Perseverance
• High internal locus of control (autonomy)
• Action orientation
• Preference for learning by doing
• Hard-working
• Determination
• Creativity

Entrepreneurial Skills
• Creative problem-solving
• Persuading
• Negotiating
• Selling
• Proposing
• Holistically managing business/projects/situations
• Strategic thinking
• Initiative decision-making under certainty
• Networking

LECTURE-2

Classification of entrepreneurs
The entrepreneurs have been broadly classified according to the type
of business, use of professional skill, motivation, growth and stages of
development. The above classification of entrepreneurs is not
exhaustive, for it aims at highlighting the broad range of entrepreneurs
found in business and profession Let’s discuss in brief, each type of
entrepreneurs.

Entrepreneurs According to the Type of Business

Entrepreneurs are found in various types of business coronations of


varying size. We may broadly classify them as follows:

Business Entrepreneur: Business entrepreneurs are individuals


who conceive an idea for a new product or service and-then creates a
business to materialize their idea into reality. They tap both production
and marketing’ resources in their search to develop a new business
opportunity. They may set up a big establishment or a small business
unit. They are called small business entrepreneurs when found in—
small business units such as printing press, textile processing house,
advertising agency; readymade garments, or confectionery. In a
majority of cases, entrepreneurs are found in small trading and
manufacturing business and entrepreneurship flourishes when the size
of the business is small.

Trading Entrepreneur: Trading entrepreneur is one who


undertakes trading activities and is not concerned with the
manufacturing work. He identifies potential markets, stimulates
demand for his product line and creates a desire and interest among.
buyers to go in for his product. He is engaged in both domestic and
overseas trade. Britain, due to geographical limitations, has developed
trade through trading. entrepreneurs. These entrepreneurs
demonstrate their ability in pushing many ideas ahead to promote
their business.

Industrial Entrepreneur : Industrial entrepreneur is essentially a


manufacturer, who identifies the potential needs of customers and
tailors a product or service to meet the marketing needs. He is a
product-oriented man who starts in an industrial unit because of the
possibility of making some new product. The entrepreneur has the
ability to convert economic resources and technology into a
considerably profitable venture. He is found in industrial units as the
electronic industry, textile units, machine tools or videocassette
tape factory and the like.

Corporate Entrepreneur : Corporate entrepreneur is a person


who demonstrates his innovative skill in organizing and managing
corporate undertaking. A corporate undertaking is a form of business’
organization, which is registered under some statute or Act, which
gives it a separate legal entity. A trust registered under the Trust Act,
or companies registered under the Companies Act are example of
corporate undertakings. A corporate entrepreneur is thus an individual
who plans, develops and manages a Corporate body.

Agricultural Entrepreneur : Agricultural entrepreneurs are


those entrepreneurs who undertake agricultural activities as raising
and marketing of crops, fertilisers and other inputs of agriculture. They
are motivated to raise agriculture through mechanization, irrigation
and application of technologies for dry land agriculture products. They
cover a broad spectrum of the agricultural sector and includes its allied
occupations.
Entrepreneurs in Technology
The application of new technology in various succors of the national
economy is essential for the future growth of business. We may
broadly classify these. entrepreneurs on the basis of the use of
technology as follows:

Technical Entrepreneur : A technical entrepreneur is


essentially compared to a “craftsman.” He develops improved quality
of goods because of his craftsmanship. He concentrates more on
production than marketing. On not much sales generation by and does
not do various sales promotional techniques. He demonstrates his
innovative capabilities in matter of production of goods and rendering
of services. The greatest strength, which the technical entrepreneur
has, is his skill in production techniques.
.
Non-technical Entrepreneur : Non-technical
entrepreneurs are those who are not concerned with the technical
aspects of the product in which they deal. They are concerned only
with developing alternative marketing and distribution strategies to
promote their business.

Professional Entrepreneur : Professional entrepreneur is


a person who is interested in establishing a business, but does not
have interest in managing or operating it once it is established. A
professional entrepreneur sells out the running business and starts
another venture with the sales proceeds. Such an entrepreneur is
dynamic and he conceives new ideas to develop alternative projects.

Entrepreneur and Motivation


Motivation is the force that influences the efforts of the entrepreneur
to achieve his. objectives. An entrepreneur is motivated to achieve or
prove his excellence in job performance. He is also motivated to
influence others by demonstrating his business acumen.

Pure Entrepreneur : A pure entrepreneur is an individual who


is motivated by psychological and economic rewards. He undertakes

Induced Entrepreneur: Induced entrepreneur is one who is


induced to take up an entrepreneurial task due to the policy measures
of the government that provides assistance, Incentives, concessions
and necessary overhead, facilities to start a venture. Most of the
induced entrepreneurs enter business due to financial, technical and
several other facilities provided to them by the state agencies to
promote entrepreneurship. A person with a sound project is provided
package assistance to his project. Today, import restriction and
allocation to production quotas to mall units have induced many
people to start a small-scale industry.

Motivated Entrepreneur : New entrepreneurs are


motivated by the desire for self-fulfillment. They come into being
because of the possibility of making and marketing some new product
for the use of consumers. If the product is developed to a saleable
stage, the entrepreneur is further motivated by reward in terms of
profit.

Spontaneous Entrepreneur: These entrepreneurs start


their business their by Entrepreneur. They are persons with initiative,
boldness and confidence in their ability, which activate, them,
underage entrepreneurial activity. Such entrepreneurs have a strong
conviction and confidence in their inborn ability.

Growth and Entrepreneurs

The development of a new venture has a greater chance of success.


The entrepreneurs a new and open field of business. The customer’s
approval to the new product gives them psychological satisfaction and
enormous profit. The industrial units are identified as units of high
growth, medium growth and low growth industries and as such we
have “Growth Entrepreneur” and “Super-Growth Entrepreneur.”

Growth Entrepreneur: Growth entrepreneurs are those who


necessarily take up a high growth industry which has substantial
growth prospects.

Super-Growth Entrepreneur: Super-growth entrepreneurs


are those who have shown enormous growth of performance in their
venture. The growth performance is identified by the liquidity of funds,
profitability and gearing.

LECTURE –3

Entrepreneur and Stages of Development


Entrepreneurs may also be classified as the first generation
entrepreneur, modern entrepreneur and classical entrepreneur
depending upon the stage of development. They are explained below:

First-Generation Entrepreneur: A first-generation


entrepreneur is one who starts an. industrial unit by innovative skill. He
is essentially an innovator, combining different technologies to
produce a marketable product or service. .

Modern Entrepreneur: A modern entrepreneur is one who


undertakes those ventures, which go well along with the changing
demand in the market. They undertake those ventures, which suit the
current marketing needs.

Classical Entrepreneur: A classical entrepreneur is one who is


concerned with the customers and marketing needs through the
development. of a self-supporting venture. He is a stereotype
entrepreneur whose aim is to maximise his economic returns at a level
consistent ‘with the survival of the ‘firm with or without an element of
growth.

Others

Innovating Entrepreneurs: Innovating entrepreneurship is


characterised by aggressive assemblage in information and analysis of
results, deriving from a novel combination of factors. Men / women in
this group are generally aggressive in experimentation who exhibit
cleverness in putting attractive possibilities into practice. One need not
invent but convert even old established products or services by
changing their utility, their value, their economic characteristics into
something new, attractive and utilitarian. Therein lies the key to their
phenomenal success. Such an entrepreneur is one who sees the
opportunity for introducing a new technique of production process or a
new commodity or a new market or a new service or even the
reorganization of an existing enterprise. Innovating entrepreneurs are
very commonly found in developed countries. There is death of such
entrepreneurs in underdeveloped countries. A country with little or no
industrial tradition can hardly produce innovating entrepreneurs. Such
entrepreneurs can emerge and work only when a certain level of
development is already achieved and people look forward to change
and progress. Innovating entrepreneurs played the key role in the rise
of modern capitalism through their enterprising spirit, hope of money
making, ability to recognize. and exploit opportunities, etc. Innovative
entrepreneurs are creative and always bring in innovation in their
work.
Imitative Entrepreneurs: Imitative entrepreneurship is characterised
by readiness to adopt successful innovations by entrepreneurs. They
imitate techniques and technology innovated by others. They are
adoptive and more flexible. Imitative entrepreneurs are also
revolutionary and important. The importance of these humbler
entrepreneurs who exploit possibilities as they present themselves and
mostly on a small scale must not be underestimated. In the first place,
such adaptation requires no mean ability. It often involves what has
aptly been called subjective innovation’, that is the ability to do things
which have
not been done before by the particular industrialist, even though,
unknown to him, the problem may have been solved in the same way
by others. By western standards, an imitative entrepreneur may be a
pedestrian figure, an adopter and imitator rather than a true innovator.
He is more an organiser of factors of production than a creator. But in
a poor country attempting to industrialize, he is nevertheless a potent
change producing figure. He can set in motion the chain reaction,
which leads to cumulative progress. This humbler type of entrepreneur
is important in undeveloped countries.

Entrepreneurial traits and motivation


Entrepreneurial traits and motivation are an indispensable function of
manage-ment. Entrepreneur is human being who has his dignity, self
respect values, sentiments, aspirations, dreams apart from economic
status. Indeed, economic betterment and social upliftment motivates a
person to distinguish from others.

Creation of a Dream
Creating a dream intention gives entrepreneurs the energy and desire
to become involved in its implementation and to be willing to change.
During the formulation of the dream, everyone participates (including
the leaders), and this allows people to start seeing each other in a
different light. How long they will maintain, their commitment depends
upon a. how well the origination’s leaders function in their role of
facilitating needs or issues that is at variance with the dream be how
clearly the leaders articulate and share information about the business
needs, and, how well the leaders openly acknowledge their willingness
to change 1n whatever fashion to attain the dreams or intention. The
process of creating the dream, in other words, intention should be
tailored to the situation with the objective of having the entire
organization ultimately own the dream. In a large organization, there
will be many dreams formulated by interdepen-dent parts of the
organisation. At some point, these should be integrated into a total
organisationaI intention. We have found that creating a dream in a
bottoms-up manner where all organizational levels participate in some
fashion is better than a tiered top-down approach.

LECTURE-4

Leadership should be the ability of those leading work units


(managers, supervisors, engineers, technical support, and group
leaders) to create an atmosphere of acceptance, openness, and trust
that will properly motivate members of the work units. Leadership
incorporates Interpersonal Competence and Administrative
Competence. Interpersonal competence, i.e. the ability to relate, to
people in a considerate and effective way:
Leadership should incorporate the following attributes:

• Give positive feedback for a good job


• Initiate confidence in employees.
• Be fair and objective, not vindictive
• Practice what is preached; do not ask for something that he or she
would not be willing to do
• Have a down-to-earth, person-to-person approach; act as part of a
team. Be compassionate and understanding; create an atmosphere of
acceptance and trust
• Listen actively.
• Clarify priorities
• Be available .for discussion.
• Link management with employees, employees with management, and
employees with each other. Communicate effectively to all people on
all shifts at all levels of the organization.
• Provide, feedback for both good and bad work.
• Talk open and give straight answers about what is happening.
• Encourage advancement.
• Give direction- to the work unit.
• Be proud and supportive of employees.
• Has a sense of vision - a dream that is blended with employees’
dream.
• Project a positive attitude.
• Is courageous.
• Sets a good example; is friendly, not moody.
• Enjoys his or her work.
• Keeps promises; plows through red tape.

Administrative competence is the ability to achieve organizational


goals within the bounds of the business constraints, policies and
procedures. This means that the leader should:

• Understand his or her job


• Understand employee’s jobs by
 Utilizing people’s skills effectively.
 Be concerned with employees’ work and the workflow.
 Stand up for and show confidence in employees.
 Take immediate action by
 Giving priority to problems.
 Follow up on promises.
 Get tough whet necessary.
 Take action to remove poor performers.
 Assure that the next in command knows his role and has
authority to act.
 Provide proper human resources for all shifts all levels of
organization.

Motivation

Motivation is an indispensable function of management. When man is


at work, he cannot be forced to work like a machine. He is a human
being who has his dignity, self-respect, values,
sentiments and aspirations apart from the economic status. Under
such circumstances the efficiency of the enterprise is related not
merely to the efficiency of sophisticated machines installed but more
importantly upon the satisfaction and the spontaneous desire of man
to put his mind and heart into the work. This spontaneous urge to
involve it work is not merely related to monetary awards or,
assignment of position or the direction to perform the duty or even the
fear of punishment but to the mechanics and system of motivation.

Motivation encompasses, complex aspects of human behavior to which


contribution has been made by sociologists, social anthropologists,
psychologists and business executives. This concept has its roots in
motives within a person, which induce him to behave in a particular
manner. Generally speaking, the concept of motivation is by and large
psychological which “relates to those forces operating within the
individual employee or subordinate which impel him to act or not to act
in certain ways”- “Motivation refers to the way in which urges, drives,
desires, aspirations, strivings or needs direct, control, or explain the
behaviour of human beings”. This is a deep-seated definition of
Motivation. It includes three things:

i. The urges, drives, desires; aspirations, strivings or needs of human


being influence human behaviour.
ii. The factors, which influence human behaviour- psychological,
sociological, economic or managerial.
iii. The efficiency of such behaviour - this may be tested by the
resultant action. Whether this behaviour has directed, controlled or
implemented the desired action. If the entrepreneur feels motivated
his behaviour will bring about the desired action. Here, one reaches
the most crucial point in the Regional or District Development Strategy
of the underdeveloped regions.
The development agency, with all the institutions concerned, will have
to formulate a motivation programme and by, continuous and
ingenious methods, involve people in the process of development so
that they acquire new attitudes and confidence to enter into new
activities and to show the propensity of enterprise. Appropriate values
will have to be inculcated and risk-taking capacity be cultivated. Unless
this aspect is given its due weightage in the Development Plan, in spite
of all the incentives, most of the projects will hardly make -much
progress. Development is the consequence of motivated people.
Motivational factors constitute the inner urge present in an individual,
which continuously demands from him to do something new and
unique as also to perform better than others. The motivational factors
again are comprised of three basic elements - entrepreneurial
motivation, personal efficiency and coping capability. The achievement
motivation is also termed efficiency motivation. McClelland_ and
Winter have made considerable studies_ and concluded that what
motivates a person to do something new or something to seek better is
the inner urge
which directs him towards such ends. This urge also forces a person to
use the resources efficiently than to be negligent of it. Also important
is the power of motivation, which is really the urge to have control over
others and to direct their course of activities towards the end which
one see to attain. These motivational factors induce the person to
undertake entrepreneurial activities, which relate to creating a new
business where there was none. This also means to excel the
performance in carrying out any activity by striving through persistent
efforts unlike others who do not have sufficient capacity for hard work.

What Makes an Entrepreneur?


This is a frequent reason. What makes an entrepreneur is the
combination of various that have enabled the personality formation
right from the childhood as also the psychological urge that exists
intensively in the person. These psychological processes which lead
men to set up their own successful business enterprises begin in the
very early life and have cumulative effect. The influences of early
childhood and other social roles are determinant factors for the
formation of that personality which motivates an individual towards
becoming an independent businessman or entrepreneur. In the case of
persons who take up jobs, it has always been found that they have
secured success in the established organizations. These people do not
have a rejection towards the established institutions and neither do
they attempt to rebel against the traditional path to success. On the
other hand, an entrepreneur fails to achieve educational success
through the established organizations and this is because of the
general rejection of the established organizations at all levels. People
who tend to like security and not uncertainty get more satisfied by
taking up jobs which are less risk-oriented and hence are not
motivated towards building up their own industrial enterprise. Men who
establish new business are men who have right from the childhood
faced a different environment in their family school and other social
situations. Research studies have indicated that successful
entrepreneurs identify a crisis before they venture into new
Entrepreneurial activities. Even in their childhood most of them had
threatening non-supportive and disgusting adult figures who had much
say in their social and economic life. Most of these have a childhood of
impoverishment and stress. Economic deprivation also works as a
motivational factor towards creating something on their own and
free oneself from the clutches of oppressing forces which attempt to
kill their spirit of individualism. Thus it has been found that creating a
successful new business is not due to an isolated incidence in the life
of an individual but it has been as a result of learned response to their
total social, emotional and economic environment.

The family plays an important role in developing the personality


necessary for turning into an entrepreneur later in life. In family
situations where security and non-risk bearing activities are
encouraged right from childhood, the individual likes to be more
security-oriented rather than attempt on his own in areas where
adventures and uncertainty conditions prevail. Also in families where
deep attachments and emotional relationship, are encouraged, it has
been seen that the child growing under such situations tends to take
up activities, which are more securityoriented than risk-oriented. Since
in most of the-middle class families attachment and security-oriented
activities are encouraged despite seeking academic excellence, it itself
does not help the person to develop the urge to be independent and
create a framework required for enjoying autonomy. As a result of this
many bright graduates deviate from-placing themselves in open
positions. On the contrary they choose to stay in the established
organizations because they have developed a favourable attitude
towards the establishment. On the other hand, the entrepreneurial
personality would rather
face the impersonal forces of the economy than cope with
interpersonal relations of the established organizations. Due to this
characteristic of an entrepreneur, they tend to shift
from job to job till they have finally found a field of activity in which
they will ultimately have a say and also enjoy the happenings of events
by their will, determination and efforts.
While people who take up jobs prefer-to see success in the traditional
and highly structured roles in the established undertakings,
entrepreneurs prefer to have a different approach towards success and
be unique in their own way. They find more satisfaction in their
creative faculties getting an opportunity to express themselves fully
rather than submitting themselves to structured and rigid forces. The
bright graduates may very often, lack creativity and be unable to break
through the undifferentiated task of circumstance and make something
of their own. The entrepreneurs, on the other hand, find. such
situations extraordinarily challenging and attempt with determination
and persistence to come out of this web of oppressing factors, which
tend to keep him in the rigid framework. Thus we find entrepreneurial
characteristics are formed through a combination of various social,
economic and psychological factors to which the person becomes
subjected to right from childhood. These factors reinforce in him to
urge to excel others and seek satisfaction in creating on his own a new
enterprise instead of seeking a security oriented job. In the absence of
these reinforcing elements, which go into the formation of the
entrepreneurial personality; however successful a person may be in his
academic life it does not guarantee that he would become a successful
entrepreneur. Something more than mere academic excellence is a
pre-requisite for becoming an entrepreneur of success and repute.
These requisites are embodied in the various qualities that the
entrepreneur must have basically within himself in order to
establish himself a successful entrepreneur. But many graduates do
lack in these qualities.

Challenge of Motivation

Since new employees and managers will be of a calibre selected with


an eye on the future, they will all be of a high competence level. It will
be a challenge to keep motivating them. It is conceivable that
organizational structure will have to be looked into order to meet
motivational needs of people and “position” them in jobs with the right
type of responsibility. Introduction of high technology and work groups
operating without the traditional band of supervisors or inspectors will
become more common. Such ‘semi-autonomous work groups’ will have
to be trained so that they are motivated to take care of
equipment and meet output targets and tough quality standards. This
will also demand leadership attributes of a high order on the part of
people manning such decentralised operations.

LECTURE-5
Entrepreneurial Functions
A successful entrepreneur recognizes the commercial potential of a
product or service, design operating policies in marketing, production,
product development and the organizational structure. He carries out
the whole set of activities of the business. He has a high capacity for
taking calculated risks and has faith in his own capabilities.

According to some economists, the functions of an entrepreneur


incorporate co-ordination of the business management of the
enterprise, risk-taking, controlling the enterprise, innovation for
change, motivation and other related activities. In reality, an
entrepreneur has to carry out a combination of these in keeping with
time and environment. Truly, he has to consider new ideas, demands
and exploit the opportunities, and thereby contribute to technical
progress. He is thus a nucleus of high growth of the enterprise. .

An entrepreneur is expected to perform the following


functions:

1. Assumption of Risk: The entrepreneur assumes all possible


risks of business, which emerges due to the possibility of changes in
the tastes of consumers, techniques of production and new inventions.
Such risks are not insurable. If they materialize, the entrepreneur has
to bear the loss himself. Thus risk bearing or uncertainty bearing still
remains the most important function of an entrepreneur, which he tries
to reduce by his initiative, skill and good judgment.
2. Business Decisions: The entrepreneur has to decide the nature
and type of goods to be produced. He enters the particular industry,
which offers him the best prospects and produces whatever
commodities he thinks will pay him the most and employs those
methods of production, which seem to him the most profitable. He
effects suitable changes in the size of the business; its location,
techniques of production and does everything that is needed for the
development of his business.
3. Managerial Functions: The entrepreneur performs the
managerial function though they are different from. Entrepreneurial
functions. He formulates production plans, sees to the finance, deals
with purchase of raw materials, provides production facilities,
organizes sales including management. In a large establishment, the
management functions are delegated to the paid managerial
personnel. The entrepreneurial functions can be performed by different
categories of people under different economic systems. In principle,
the entrepreneur could be a planner in a socialist economy, or even a
priest or king in a traditional society. In practice, entrepreneurship is
closely identified with private enterprise in a market economy.
An entrepreneur performs many useful functions. He undertakes a
venture, assumes risk and earns profit. He is the man having a strong
motivation to achieve success. He is self-confident in his
entrepreneurial abilities. He exploits opportunities wherever and
whenever they arise. The entrepreneur can identify opportunities to
start a business either as a manufacturer or as a distributor, for
entrepreneurship exists in every field of economic endeavour.
Manufacturing activities require a relatively high capital investment
and a greater
degree of entrepreneurial abilities than distribution activities.

Entrepreneur vs. Entrepreneurship

“The term entrepreneur” is often used interchangeably’ with


“entrepreneurship.” But, conceptually; they are different, yet they are
just like the two sides of a coin. Their differences are as follows:

Entrepreneur: Refers to a Person


 Visualiser
 Creator
 Organiser
 Innovator
 Technician
 Initiator
 Decision-maker -
 Planner
 Leader
 Motivator
 Programmer
 Risk-taker
 Communicator
 Administrator
Entrepreneurship: Refers to a process
 Vision
 Creation Organization
 Innovation Technology Initiative
 Decision
 Planning
 Leadership
 Motivation
 Action
 Risk-taking
 Communication
 Administration
 Desired future state involves growth or change
 Self-perceived
 power to achievegoal
 Entrepreneur Satisfied manager
 Frustrated
 Potential Bureaucratic entrepreneur functionary

LECTURE-6

ENTREPRENEUR VS PROFESSIONAL MANAGERS

Entrepreneurs and professional managers are the two sides of the coin.
Their individual itineraries will make the difference between success
and failure for the enterprise. An effective entrepreneurial strategy
should be an integral part of an enterprise’s competitive positioning.
The progressive development in the size of business and the
separation of ownership and management in enterprises has made
management a distinct profession. Although both strive to achieve the
similar goals they are said to distinguish themselves in varied
measures.
According to the Sachar Committee on Company Law “A professional
manager is an individual who
 belongs to the profession of law, accountancy, medicine,
engineering or architecture, or
 is a member of a recognised professional body or institutional
body exercising supervisory jurisdiction over its members, or
 is a holder of a degree or diploma in management from any
recognised university and possesses not less than five years
experience in an executive capacity in a company, corporation or
in the government”; or possesses minimum of ten years’
experience in the same capacity and in the same institutions
mentioned in the third category.

A professional manager is one who specializes in the work of planning,


organizing, leading and controlling the efforts of others by the
systematic used of classified knowledge and principles. He subscribes
to the standards of practice and code of ethics established by a
recognized body. To be a professional manager he should
i. have an insight of his job requirements;
ii. carry out continuous updating of his learning to fulfill his job
requirements;
iii. have a performance-oriented relationship with his subordinates,
super-ordinates and colleagues based on mutual respect to facilitate
team work for collective contribution to the organization;
iv. have a relationship based on long-term mutual benefit approach
with customers, suppliers and other members of the public, and
v. have communication with colleagues to improve the standard
contribution and the prestige managerial profession.

Professional Management
The progressive development in the size of business and the
separation of ownership and management in the corporate enterprises
have contributed to the emergence of management as a distinct
profession. A management can be professional not, by hiring
professional managers but by adopting the style of professional
management. Professional management organizes managerial
functions by setting long-term objectives, formulating policies and
strategies, developing formal commu-nication network and evaluation
system to deal with the emergence of business problems.

The characteristics of professional management are


as follows:
Body of Knowledge: Management theory has a philosophy of its
own. It is based on systematic and scientific studies. Precisely, the
management of knowledge is’ the passport to enter the world of
entrepreneurship.
Management Tools: Tools of management such as accounting,
business law, psychology, statistics and data processing have been
developed to enhance the practical utility of the science of
management.
Specialization: There is a growing tendency to select and appoint
highly qualified, trained and experienced persons to manage the
business in each functional area of management. This has created
greater demand for professionals.
Separate Discipline: Management studies in many universities and
institutions of higher learning are recognized as a separate discipline.
Seminars, special courses, and training programmes have become
essential in management areas like export management, personnel
management, production management, marketing management,
financial’ management, etc.
Code of Conduct: Business management is regarded as a social
institution. It has social. responsibilities towards customers,
employees’ and the society on the whole. Consumer-oriented
marketing concept is an important corporate code of conduct. Pressure
of consumerism, trade unionism, public opinion and legislation are
definitely inducing the management to evolve a code of ethics for
consumer satisfactions and. holding a major market share.
Professional Association: In our country too, business management
associations have’ been formed. They mainly aim at spreading the
ethics of business management and build up a sound public image of
the managerial profession.
A professional manager is required to possess specific management
knowledge relating to (a) Technical processes, products, materials,
equipment and procedures; (b) Economic knowledge about the basic
objective of the entrepreneurs and its position in the economic and
social system within which it is operating; (c) Human knowledge about
employee motivation, moral and delegation of authority; and (d)
Administrative knowledge about application and analysis of data. This
will facilitate him to deal with various problems of the organisation in
an effective manner. A person can become a professional manager by
the acquisition of knowledge through formal education. . An owner-
manager can achieve success due to his personal cultural traits. Many
great entrepreneurs are self-made, for they were not handicapped by
their lack of formal education but came out as successful
entrepreneurs due to their skill and intelligence. One can easily identify
such an entrepreneur manager in any profession, may it be bide or
aggravate manufacturing, polishing or grinding, retailing or
wholesaling.

Managers and Entrepreneurs


Both managers and entrepreneurs are answerable for producing
results. The results are, of course, different. In their respective result
areas, the buck stops with them. While they can delegate, they are
finally accountable. Both have to produce results through people
working with them though they deal with different sets of people. They
are not effective in the long run, if they are loners. Both are decision-
makers but the decisions are different as their tasks vary. Both have to
operate under constraints, which are understandably different. To be
effective in their respective roles, both have to follow sound principles
of management like planning, staffing, delegation and control. The
focus of these management tools may vary depending upon the
ultimate purpose.

Similarities Between Managers and Entrepreneurs


• To produce results
• To produce results through people
• To take decisions
• To cooperate under constraints
• To follow sound principles of management

A successful organisation needs both entrepreneurship and


management. The entrepreneurial role may be played by the Chief
Executive and his team of top-level executives, the managerial role by
the middle-level and joint-level executives;
Entrepreneur vs. Manager: The, entrepreneur is a person who is
motivated satisfy a high need for achievement in innovative and
creative activities. His creative behaviour and innovative spirit. which
forms a process of an endless chain is termed as entrepreneurship. It is
not enough for the entrepreneur to build up the process, but equally
important task for him is to manage the business. He performs
entrepreneurial vis-à-vis managerial functions. The entrepreneur
enters at a transitional stage in which what is initially with innovation
becomes a routine., for him the transition from entrepreneurship to
management. Also, the emphasis switches from techniques and
analytical methods to insight and to involvement with people. The
entrepreneur perceives and exploits opportunity, and the subsequent
steps
necessary for organization and pertinent to management. The
entrepreneur differs from the professional manager in that he
undertakes a venture for his personal gratification. As such he cannot
live within the framework of occupational behaviour set by others. He
may engage professional manager to perform some of his functions
such as setting of objectives, policies, procedures, rules, strategies and
formal communication network. However; the entrepreneurial
functions of innovation? Assumption of business risk and commitment
to his vision cannot be delegated to the’ professional manager. Failure
to the professional executive may mean a little more than locating a
new job perhaps even at a higher salary, whereas failure of an
entrepreneur in his efforts would mean a devastating loss to his career.
The professional manager has to work within the framework of policy
guidelines laid down by the entrepreneur.

Entrepreneur and Enterprises


Entrepreneur is the fourth factor of enterprise. According to Noah
Webster, “entrepreneur is one who assumes the risk and management
of business.” The enterprise is the basic unit of an economic
organisation. It produces goods and services worth more than the
resources used. Thus, any effort for it to bear fruit ultimately affect
directly or indirectly individual enterprise. Enterprise is an undertaking,
which involves activity, courage, and energy. It involves the willingness
to assume risks and decision making, in undertaking an economic
activity. It also involves innovation. Thus, entrepreneur and enterprise
are inter-linked, enterprise being the offshoot of an entrepreneur. Its
success is dependent on the entrepreneur. Peter Drucker has
observed, “Innovation is the specific tool of entrepreneurs, the means
by which they exploit change as an opportunity for a different business
or a different service. It is capable of being practiced.”
Intrapreneurs
Of late, a new breed of corporate entrepreneurs has come to the fore
in large organizations. They are called “intrapreneurs.” They are
entrepreneurs who catch hold of a new idea for a product, service, or
process and work to bring this idea to fruition within the framework of
the organisation. Intrapreneurs with their innovations and dedicated
effort are perceived as a valuable asset by the organisation, inspiring
others. He serves as a champion to others in the organisation. In
America, a number of intrapreneurs are leaving their jobs to start their
own ventures. Many such intrapreneurs have become exceedingly
successful in their new ventures and, what is more, they are causing a
threat to the companies they left a few years ago.

LECTURE-7

Designing an Entrepreneurship Training Programme


As mentioned earlier, designing the training programme involve
setting training objective, development the course content and
choosing appropriate training methods. The programme design is
prescribed by the training needs of the target clientele. These
objectives should be stated clearly, be trainee-centered, employ
practically and be concerned with ends rather than means. When
objectives are set, the course content can be developed. The elements
of content are knowledge, habits, skills and control of emotion. The
material to be included should be accorded priority according to the
goal to be achieved.
Emergence of EDI : A Chronology of Events

1969
The birth of training efforts for entrepreneurial promotion in the
country was purely on indigenous initiative i.e. the Technician Scheme
launched by two state-level agencies of Gujarat viz. Gujarat Industrial
Investment Corporation (GIIC) and Gujarat Industrial Development
Corporation (GIDC) dealing with credit and infrastructure facilities
respectively. The scheme visualized 100% finance without collaterals
based entirely on the viability of the project and the competence of the
person-behind-the project i.e., the entrepreneur. A large number of
people took advantage of this scheme.

1970
The real gain of the scheme was the realisation that there was vast
entrepreneurial potential available in the country that could be tapped
and developed through appropriate training intervention. This led GIIC,
along with other state-level agencies like GIDC, Gujarat State Finance
Corporation and Gujarat Small Industries Development Corporation to
conceptualise and launch a 3-month training programme known as
‘Entrepreneurship Development Programme’ (EDP). The programme
was successful in terms of its results as 40 out of 45 trainees (89%)
started their own small scale industries.

1978
By this time, the success story of the Gujarat experiment spread across
the nation and the Ford Foundation encouraged the Gujarat team to
test out EDP strategy in a few less developed states.

1979
With a large number of programmes proposed, a need for having a
separate state-level organisation became imperative. And so the
Gujarat Centre for Entrepreneurship Development (CED) came into
existence.

1981
After realising the effectiveness of EDP, many development agencies in
other parts of the country organised their own EDPs. Gujarat CED being
a premier institution provided professional support to a few of these.

1982
With increasing number of organisations seeking such support from
Gujarat CED, national financial institutions and banks felt it necessary
to set up a national resource and support
organisation committed to entrepreneurship education, training,
research and capacity building.

1983
The idea took a concrete shape when the Industrial Development Bank
of India, the apex financial institution which had shown keen interest in
the Gujarat experiment, joined hands with other developmental banks.
They jointly established a national level organisation, Entrepreneurship
Development Institute of India, on April 20, 1983.

The Institute
Entrepreneurship Development Institute of India (EDI), a wholly
autonomous and not-for-profit institution, set up in 1983, is sponsored
by apex financial institutions, the Industrial
Development Bank of India (IDBI), the Industrial Finance Corporation of
India (IFCI), the Industrial Credit and Investment Corporation of India
(ICICI) and the State Bank of India (SBI). The Government of Gujarat
pledged twentythree acres of land on which stands the majestic and
sprawling EDI campus. The Mission The EDI has been spearheading
entrepreneurship movement throughout the nation with a belief that
entrepreneurs need not necessarily be born; they can be developed
through well conceived and well directed activities. In consonance with
this belief, the mission of EDI is to :

• augment the supply of new entrepreneurs through


educational training,
• produce multiplier effect on opportunities for
selfemployment,
• improve the managerial capabilities of small scale
industries,
• contribute to the dispersal of business ownership and thus
expand the social base of Indian entrepreneurial class,
• contribute to the creation and dissemination of new
knowledge and insight in entrepreneurial theory and
practice through research,
• augment the supply of trainer-motivators for
entrepreneurship development,
• participate in institution building efforts,
• sensitise the support environment to facilitate potential as
well as existing entrepreneurs to establish & manage their
enterprises sucessfully,
• promote micro-enterprises at rural level,
• inculcate the spirit of ‘Entrepreneurship’ in young
generation,
• collaborate with similar organisations in India and other
developing countries to accomplish the above objectives.

“Entrepreneurship plays a key role in the economic


development of a country.”

LECTURE-8

Introduction

The Entrepreneurial development is a key to achieve overall economic


development through higher level of industrial activity. Emperial
studies have shown that entrepreneurs are made.
Entrepreneurial development is a process in which persons are injected
with motivational drives of achievement and in sight to tackle
uncertain and risky situations especially in business undertakings. The
process of entrepreneurial development focuses on training, education,
reorientation and creation of conducive and healthy environment for
the growth of enterprises. Entrepreneurial competence makes all the
different to the rate of economic growth-this calls for the
entrepreneur’s potential inputs to boost the economic development of
India. In India, state and private entrepreneurships co-exist. The small-
scale industrial sector and business are left completely to private
entrepreneurs. Entrepreneurship development and small-scale industry
development are the same coin. Small-scale enterprise is the initiation
into entrepreneurship. Further, that the rapid growth of small-scale
sector is mainly due to the entrepreneurship development is also true.
It is, therefore, in this context that an increasingly important role has
been assigned for the identification and promotion of
entrepreneurs in this sector. So, entrepreneurship involves taking risks
or making investment
under conditions of uncertainty and to innovate, plan and take decisions
so as increase production and productivity.

The Meaning of EDP


Entrepreneurial Development Programme (EDP) designed to help a
person in strengthening and fulfilling his entrepreneurial motive and in
acquiring skills and capabilities necessary for
playing his entrepreneurial role effectively. Towards this end, it is
necessary to promote his understanding of motive, motivation pattern,
their impact on behaviour and entrepreneurial value. A programme,
which seeks to do this, can qualify to be called a programmer. This has
to be stressed here, because there are a number of programmes,
which aim at providing informational or managerial inputs or focus on
preparation of a project. Although all these inputs are required by a
new entrepreneur, a programme not touching entrepreneurial
motivation and behaviour cannot be called an EDP. Though EDP has
been recognized as an effective human resource development tool,
many a times there are very many expectations from a singe
programme, like removing unemployment, enhancing industrial
development, promoting small-scale industries, developing industrially
underdeveloped regions, etc.
EDP is primarily meant for developing those first-generation
entrepreneurs, who on their own cannot become successful
entrepreneurs. It covers three major variable location, target
group and enterprise (entrepreneurs activities). Any of these can
become the focus or starting point for initiating and implementing an
EDP. The remaining two then will follow by making proper synthesis
with the first. As for example, the objective is to promote women
entrepreneurs, suitable location and proper entrepreneurial activities
must match or if the objective is to develop North-East region, then the
potential target group and feasible entrepreneurial ventures must
follow. EDP by itself therefore aims at achieving the specific objectives
of the programmes and therefore cannot create any magical result. It
is a continuous process of training and motivating then to set up
profitable enterprises in large Design. It is now well recognized that
entrepreneurs can be development through appropriately designed
entrepreneurship development programmers. These programmes
broadly envisage a three-tiered approach: developing achievement
motivation and sharpening of entrepreneurial traits and behaviour,
project planning and development and guidance on industrial
opportunities, incentives and facilities and rules and regulations, and
developing managerial and operational capabilities. Various techniques
and approaches have been developed and adopted to achieve these
objectives, keeping in view the target group and/or to target areas. The
structuring of the programmes and training methodology also
necessitate the consideration of the prospective entrepreneurs as well
as support services after the training have a significant impact on the
success of the entrepreneur development programmes.
Another important aspect of an EDP is the human factor. The human
factor refers to the attitude, desire and motivation of the individual, his
capability to perceive the environmental changes and opportunities as
well as ability to sole the problems which factor, and also sharpens his
skills, builds up a sound value system.

Misconceptions about EDP


EDP is a catchword. But misconceptions about EDP prevail. Lack of
understanding and clarity has limited its growth. EDP has yet to
contribute much to the industrial economy of the country.
Chandramauli Pathak has listed some of the prevailing common
misconception about EDP. They are:

Join an EDP; all your Problems are solved


Joining an EDP is a privilege. It is indeed a valuable opportunity not
available to all. But many a time an impression is created that joining
EDP means assurance of finance, obtaining the required license for
business ventures and availing of the special incentives. This
misconception arises either because of lack of “honest” promotional
efforts to get participants for EDP, or by attracting entrepreneurs by
raising false hopes. It may also be a result of entrepreneur’s
expectation in gaining such advantages like finance, licenses, raw
material, quotations, etc. since most EDPs are statesponsored.
Unless this misconception at both ends (trainers and trainee) is not
removed, EDP will only create more problems rather than solving
them. In reality, an EDP equips and makes them competent to
anticipate and deal with a variety of problems that any entrepreneur
may face. It prepares them to deserve and make good use of various
forms of assistance.

EDP means only Training


Any attempt to develop potential entrepreneurs through classroom
training has been treated as EDPs. In fact, training is only one of the
segments in “ the process” of developing entrepreneurs. The ED
process starts from identifying the potential and right candidates,
linking suitable project with each one, training and development
managerial and entrepreneurial capabilities, counseling and motivating
the entrepreneur and providing the required follow-up support to help
him/her in establishing the venture. The whole process extends much
beyond “training”. Much of it is personal counseling and support.

Higher the Number, better the EDP


EDPs unfortunately have often been linked with statistical output
rather than qualitative results. The quantitative dimension has forced
manipulations in EDPs. It is taken that an EDP is a success with the
maximum number of participants of responses. The quality and impact
of the EDP matters more than the quantitative dimension. Strategies to
promote a particular target group, the nature in view ventures go a
long way in deciding the quality and impact of n EDP

EDP Success is the Sole Responsibility of Trainer- Motivators


It is the responsibility of the Trainer-Motivator in most cases, to
conduct the programme. However, many environmental factors
challenge his role as a motivator. The trainer alone cannot or influence
external factors, which usually come in the ay of ‘start-ups’ out of an
EDP. EDP conducting agencies and the trainers alone cannot develop
entrepreneurs and help them set up their enterprises since many her
support agencies like Banks, SFCs, DICs, etc. are also involved to
create better co-ordination and effective linkages with these agencies.
Such misconceptions prevail amongst EDP trainers or funding
agencies, as also among entrepreneurs. We do hope that better
awareness and clarity about the EDP process and strategy will help get
EDPs their due importance and recognition.

LECTURE-9
Entrepreneurship DevelopmentProgramme

Past experience has shown that industrial promotion by provision of


facilities, technical assistance, management training, consultancy,
industrial information and other services alone are not sufficient to
develop entrepreneurs. It was concluded that the focal point should be
aimed at the overlooked entrepreneurial spirit and entrepreneurial
characteristics of the people to be developed. The EDP package was
therefore, launched. Over the years, the EDPs have become a vital
strategy for harnessing the vast untapped human skills, to channelise
them into accelerating industrialization, in general and growth of the
small-scale sector, in particular.
Of late, entrepreneurship development has become extremely
important in achieving the goals of all- around development in the
country. Consequently, many entrepreneurial opportunities are
emerging in various fields. Be it electronic, medicine, engineering,
agriculture, communication, atomic energy, telecommunication, food
technology and packaging, entrepreneurial opportunities have
surfaced at rapid pace in all these and many other areas. Such
opportunities, however, become more perceptible and profitable to
entrepreneurs when exposed to latest developments in the respective
fields either in terms of technology, use or style of living. Accessibility
and understanding of such information widens the base of opportunity
sensing by potential entrepreneurs.
Objectives of the Programme

In line with the national programme for the promotion and


development of small and medium industries in the countryside, the
Industrial Service Institute (ISI) under the Department of Industrial
Promotion (DDIP) launched the EDP to give substance to the
government’s policies of stimulation of economic growth, dispersing
industries to rural areas and promoting the processing of local raw
materials. The EDP was considered a part of the industrial
development policy, which was articulated in the Five- Years National
Economic and Social Development Plan. The Programme had sought to
develop entrepreneurial activities in the rural areas of Thailand as a
vehicle for economic growth with the achievement of the following
objective:
 To promote the development of small and medium enterprises
that would encourage self-employment among potential
entrepreneurs;
 To provide, in the rural areas, special programmes designed that
would ventures and encourage expansion of existing activities of
small and medium industries;
 To generate employment and self-employment opportunities in
the processing of indigenous raw materials for local consumption
and for export;
 To develop entrepreneurial opportunities for potential
entrepreneurs and upgrade managerial skills for existing
entrepreneurs.

For a sound training programme for entrepreneurship development in


India, the expert constituted by the NIESBBUD accepted that it must be
able to help selected entrepreneurs to:
 Develop and strengthen their entrepreneurial quality/motivation;
 Analyse environment related to small industry and small
business;
 Select project/product;
 Formulate project;
 Understand the process and procedure of setting up of small
enterprise;
 Know and influence the source of help/support needed for
launching the enterprise;
 Acquire the basic management skills;
 Know the pros and cons of being an entrepreneur; and
 Acquaint and appreciate the needed social
responsibility/entrepreneurial disciplines.
Some of the other important objectives of
entrepreneurial training are:

 To let the entrepreneur set or reset the objectives of his business


and work individually and along with his group for their
realisation.
 To prepare him for accepting totally unforeseen risks of business
after such training.
 To enable him to take strategic decisions.
 To enable him to build an integrated team to fulfill the demands
of tomorrow.
 To communicate fast, clearly and effectively.
 To develop a broad vision to see the business as a whole and to
integrate his function with it.
 To enable him to relate his product and industry to the total
environment, to find what is significant in it and to take it into
account in his decisions and action.
 To enable him to copy with and coordinate all relevant paper
work, most of which is statutorily obligatory.
 To make him accept industrial democracy, that is, accepting
workers as partners in enterprises; and
 To strength his integrity, honestly, and compliance with law, the
key to success in the long run.

Issues of EDPs
The development of EDP as a strategy contributing to the
industrialization and economic growth of backward and other areas
needs a proper direction and purposeful. The contribution of EDPs is
very uneven among regions for which definite programmes need to be
chalked out to bring about some degree of uniformity and up
gradation. Before this is tackled, some important issues need
immediate attention. They are detailed below for consideration.

LECTURE-10
1. Structure and Composition of EDPs: The ED programme
should have a practical content with inter-institutional organisational
arrangement to make it a success. The
successful EDPs have, at their base, the inter-institutional cooperation
or an institution such as Gujarat Centre of the State Bank of India,
which besides having conducted the programmes has also arranged
for finance and other inputs for the entrepreneurs. The EDPs conducted
in isolation would dissipate resources and talents. The issue, therefore,
for effective functioning of EDPs is to have a financial agency strongly
backing up efforts for entrepreneurial development. The place and role
of TCOs need to be reviewed and their activities suitably accelerated.
Who should conduct and EDP is an important issue.

2. Areas of Operation: As has been stated earlier, in North-


Eastern Area, entrepreneurial development activities have not been
benefiting from the support activities of financial institutions. In these
areas, programmes have to be linked with support activities.

3. Fixing Priorities: Another area of fixing the priorities of EDPs is


to consider their working in terms of efficiency and social need criteria.
Evaluation of EDPs has revealed that
those who have business experience, education and skills are proving
successful entrepreneurs. This source should be tapped first and then
go to the stratum to cover entrepreneurs from the non-traditional
class, i.e. without business and industrial experience, but having the
potential of becoming successful entrepreneurs. Next come the
entrepreneurs belonging to backward and other communities who
have to overcome many additional handicaps to become successful
entrepreneurs. A proper course content of EDPs has to be developed to
meet the specific requirements of each of these three strata of
entrepreneurs in proper balance, without sacrificing the efficiency
criteria.

4. Lack of Specialists’ Support: Entrepreneurship has been an area


of study requiring inter-disciplinary efforts by people from different
disciplines. A large number of organisations/agencies engaged in
entrepreneurship development in India to do not have in the home all
the specialists required and have to depend upon outside faculty. The
number of specialists available in the country for developing small-
scale industries is not very large. As a result, many a time
organisations are unable to locate/avail services of experts. On the
other hand, there are specialists who have time to spare in which they
can render their services to the organisations. This apart, the ED
Programmes in India are afflicted with a
number of operational problems. As such, though there are many a
institution to train entrepreneurs, the growth of entrepreneurs is
inhibited by these problems. The operational
problems of EDP are as follows:
• Inherent inability,
• Diverse opinions,
• No proper strategy,
• Low institutional commitment,
• No local support,
• Non-availability of inputs,
• Poor follow-up
• No adequate research facilities,
• III-planned training methodology,
• Inconsistent programme design,
• Perpetual ambiguity,
• No clear-cut objective,
• Lack of clarity in approach, and
• Lack of creativity and commitment.

LECTUR-11
Importance of Training
The importance of training employees has the following advantages:
1. It makes sure the availability of skilled workers at all levels of
management.
2. It increases the potential abilities of workers and thus improves
their performance to the maximum attainable level.
3. It enable workers to perform the work ore efficiently and
precisely so as to maintain the quality of products.
4. It minimizes excessive scraps, defective outputs and wastage in
the production process.
5. It minimizes accidents said to be increasing, as unskilled and
semi-skilled workers are more to industrial accidents.
6. Training reduces fatigue.
7. Training enable the workers to work speedily and thus increases
the earning of employees.
8. When the speed of production increases, overtime work can be
avoided and therefore, the payment of overtime does not arise.
9. A trained worker does not feel the need to join other factories
and thus reduces the labour turnover.
10. Training improves the good relations between employees and
management.
11. New techniques can be easily adopted through trained
employees.
12. Standardisation can be adopted in a factory where trained
employees are available.
13. Team spirit and teamwork can be promoted when employment
are fully trained.
14. Training enable employees to occupy higher positions of
authority.
15. As trained workers do not require any consolation and because
of less spoilage resulting from their performance, the supervision
cost can be minimised.

Objectives of Training
The training programme is designed to subserve the following
objectives:
1. To impart basic knowledge about he industry, product and
production methods;
2. To build the necessary skills of new entrepreneurs and workers;
3. To assist the entrepreneur/ worker to function more effectively in
his present position by exposing him to the least concept,
techniques and information;
4. To build up second line of workers and prepare them to shoulder
additional responsibility and/or switch on to the production of a
new product, if there is any diversification;
5. To expose the entrepreneur to the latest developments which
directly or indirectly affect him;
6. To broaden the vision of entrepreneurs by providing them
suitable opportunities for an interchange of experiences within
and outside an industry;
7. To impart customer education;
8. To impart knowledge of the marketing of goods;

The Principles of training may be enumerated as under:


1. Training should be given in a proper atmosphere and that too
systematically through duly qualified and trained instructors.
2. Training should be of reasonably long duration so as to enable
the workers to understand the theory and develop skills for
managing the job accurately.
3. Training should be given at all levels. This means training
programme of a factory should include induction-training, job
training, training for promotion and refresher training.
4. The level of training should be high. It must be comprehensive
and the participant should be made familiar with the latest
trends in production technology.
5. Training should consist not only of theory; it should be
supplemented by practical training and made interesting to all
participants.
LECTURE-12

Methods of Training
The following are the important methods by which training may be
imparted:

1. Individual instruction: Under this method, a single individual is


selected for training. This mode of training is undertaken where a
complicated skill is to be taught to an individual.
2. Group instruction: This mode of training is suitable for a group of
individuals with a similar type of work and where general instructions
are applicable to all are to be given.
3. Lecture method: Here the instructor communication in theory the
practice to be followed by the learners. Under this method, wherever
there are any doubts, they may be clarified on the spot.
4. Demonstration method: Where the performance of work is to be
shown practically by the instructor for better understanding, this
method can be followed. This is more concerned with the practical than
theoretical aspect.
5. Written instructional method: The medium of training is followed
where a suture reference is to be made by the learners. This method is
mostly followed where a standardized production system is followed.
6. Conference: Conferences are frequently organize wherein experts
in the field share their ideas and bring to the notice of learners new
ideas and techniques to increase production.
7. Meeting: Meetings are a mode of training involving a group of
people who discuss the various problems confronting them. They
involve exchange ideas and views and later on,
coming to a firm conclusion based on the various proposals and
alternatives.

Small-scale industries in India suffer from various handicaps on of the


most important among these is the non-availability of technical and
managerial personnel of the required caliber. On the Contrary, large-
scale industries can employ qualified staff specialized in different areas
of production and management. Further, they can afford to retain from
time to time their own supervisory personnel and workers. As against
this, the small industrialist cannot to employ workers and supervisors
having a sound educational background and the
requisite experience in production and in trade. Besides, they do not
have the equipment and resources to train their own staff. To meet
this lacuna, the training of small industrialist and their workers has
been taken up as an important part of the Industries Organisations.
The courses provided are designed to familiarize small industrialists
and their workers with the latest tools and techniques in their
respective fields. The object of the training of personnel for and from
small-scale industries is to equip them with improved management/
technical know-how and to apprise them of the kinds of assistance
available from various Government organisation training programme of
such personnel is suitably geared to the needs of individuals with
different background and performing different function.

Benefits of the Training Process


1. The training: The combination of on-the-job training ad constancy
with group training during rather a short time (three weeks) is an
effective strategy.
o The entrepreneurs/participants demonstrate willingness to
improve existing working methodology and techniques and
learned the possibilities or limitations in the use
ofequipment;
o They are more aware of the need to develop and introduce
new products and production techniques; and relationship
of theory to the situation in their workplace.
o They demonstrate a growing awareness of the relationship
between technical problem in their enterprises and
management and control;
o During the group training, an opportunity is created to
exchange experiences and problem and questions that
were observed or arisen during the visits to the
enterprises.

2. Level of instruction: Through the mix of on-the-job training and


group training, but mostly through direct contact between the
entrepreneur and the instructor at the work floor
of the former, the instructor usually speaks the language of the
entrepreneur. The instructor had to adapt himself to the client, to the
entrepreneur, and to think at is level while searching for new
methodologies and solutions for problems observed. This contrasts
with formal training programmes where the participants have to adjust
themselves to the trainer and his environment, and where the
participants have to adjust afterwards with the burden of re-entry into
their system the new knowledge. The entrepreneur feels himself more
at ease in his own environment where he is the boss; and with that
self-confidence he often feels more comfortable in questioning the
trainer/instructor about the things he himself considers to be of
interest.
3. Mobilization of resources: Within a limited time, the
identification of the pertinent resources on contract terms for the
training programme was initiated. Successful negotiation
with a state technical training institute resulted in the contracting of
three professionals for the three weeks of the course. This was mainly
possible though the availability of a budget, and the possibility to
decide on the use of that budget without approvals and endorsements
of third parties or higher authorities. With this the mobilization of
resources through contracts approved at local level directly was made.
Furthermore, the contribution of the larger industries was ensured,
which resulted in the release of one instructor for a instructor for a
three-week period at no cost. Although his participation was of high
value, his release by the large industry was a marginal cost, and was
seen as a contribution to the development of the area (social
investment by the large industry, also to improve their general image).
Unfortunately, it was not possible to use the workshop facilities of a
particular industry. It became evident that even government services
could be mobilized and integrated into the programme at the working
level. Approaching the government at higher level for official approval
and release would have been attractive, because such activities are
normally not foreseen in annual plans and budgets, nor do the budget
cater for such additional expenditures.

4. Cost effectiveness: One of the major objections raised against the


individualized training approach (albeit for a group of trainees) like the
one described here, is related to the cost aspects. It is often claimed
that the costs of group training alone (without consultancy and the
like) are considerably less than the constancy-cum-instruction
technique. This, however, is not at all that obvious. In the field of
training in the small-scale enterprise sector, we see the following
principles being adopted more and more:
o Training of entrepreneurs is seen more as a process of
transfer of know-how
o More attention is being paid to the process of adult
learning instead of just setting university and college
courses;
o Training programmes are more individualized, with special
attention to the individual training needs;
o Training programmes are becoming more practiceoriented,
with more attention being paid to on-the-job training
aspects.
o Consultancy and extension are seen more and more as a
part of the process of transfer of know-hoe; and
o More attention is being paid to ensuring active
participation of both the entrepreneur and the “instructor”

LECTURE-13
PROJECTS MANAGEMENT
A Project
It is known that a project is planned to achieve a specific objective,
which calls for a specific authority to implement it. Every project has
three basic attributes: the input characteristics,
output characteristics and the social cost benefit characteristics. The
input characteristics define what the project will consume. Projects
require raw materials, energy, manpower, financial resources and an
organizational set up. In order to make the input characteristics of
project explicit, it is necessary to evaluate the nature as well as the
magnitude of each of these essential inputs. The output characteristics
of a project define what the project will generate — production of
addition goods, provision of additional services. In either case, it is
essential to have a broad idea of quantitative as well as qualitative of
the project outputs. It
also becomes necessary in case of quantifiable projects to assess
financial outputs, which the project will generate. Input and output
characteristics of a project define the impact of the project on the
project implementing body and the environment. Every project,
however, has a social cost-benefit aspect, which affects the current
equilibrium of the availabilities and non-availabilities in an economy
and thus involves the entire society in its implications. The sacrifice,
which the society will be called upon to make, and the benefits, which
will be accrued to the society, has therefore to be carefully evaluated.
The identification of the project characteristics provides the basic
information, which along with the information obtained from a study of
the project implementing body and the environment forms the basis of
evaluation of the feasibility prospects of the project idea.
More importantly, an appraisal of a project must be carried out in
explicit, well-defined, preferably standardized terms and should be
based on sound economic logic. Informal and cursory treatment should
give way to thorough and rigorous analysis. The setting up of an
enterprise should be based on careful and sound evaluation. Project
appraisal brings credibility to a project and protects from in-built
weaknesses. And, a healthy and viable industry comes up.
Choosing an Idea

Establishing yourself as a successful entrepreneur depends, in part,


upon choosing a good idea. That idea must not be good for the market,
but good for the project and good for the entrepreneurs. It should also
be manageable by you without much dependence on others.
Importantly, the idea should give satisfactory results to you. As an
entrepreneur, when you are searching for an idea worthy of your
commitment, don’t pursue one idea at a time. Develop five or ten in
parallel until one emerges so appropriate that it begins to dominate
your thoughts and fantasies. To adopt one idea at a time has several
disadvantages. First, because you are constantly receiving random
information from what you real and from people you talk to, having a
number of back-burner ideas gives you a greater likelihood of finding
use for information you pick up. Secondly, if you are pursuing a singel
idea by feigning commitment before you feel it, you may put yourself
into a tight corner. It is very hard to be objective when you are down to
your last idea. Choosing an idea is quite difficult and the entrepreneur
has to weigh objectively his intrinsic capabilities in finalising an idea. In
the idea stage, suggestions for new products are obtained from all
possible sources: customers, competitors, R & D, distributors, and
company employees. Frequently, one of the creative problemsolving
techniques discussed below are used to develop marketable ideas. The
suggested ideas need to be carefully screened to determine which are
good enough to qualify for a more detailed investigation criterion.

Product Idea

It had been and exhausting day. Mansukhbhai had spent all morning
cycling to and fro, hawking his homemade goods in the lanes and
bylanes of the crowded city. Now he sat outside a pan shop, trying to
snatch a few minutes rest before starting another round. As he sat
there, he noticed how the customers at the pan shop kept growing, in
number and impatience. Mansukhbhai saw the time it took to make
each pan, the panwallah trying to attend to a dozen people at the
same time. It occurred to him that If pan could be packaged and sold,
it would instantly find a ready market. And an idea was born. A man of
the masses, with only his native shrewdness to guide him, had hit upon
a marketing idea in a million. The kind that takes a genius to think of.
That man was Mansukhbhai Mahadevbhai Kothari. The man behind Pan
Parag Pan Masala.

Selection of Product
At this stage, the entrepreneur is concerned with identifying a
particular product that he hopes to market successfully in the business
venture. The right the product here means that which can be marketed
at a reasonable profit which will go towards growth business. Various
factors influence the entrepreneur in selecting the right product. These
decisive factors are
1. whether import restrictions or the items selection of the products.
This is because in the case of banned items the domestic market offers
considerable scope for selling, as the demand for such a product would
not be met by import. Thus, if the item selected fall in the category of
banned import items, the entrepreneur would favour it the category of
banned import items, the entrepreneur would favour it and in the case
of unrestricted import of the items, he would definitely not show his
favour for selecting such a product.
2. if the entrepreneur himself or his partners have gathered,
substantial amount of experience in the manufacture and marketing of
certain products, than the selection of such a product would be to their
advantage. Therefore, most often the items selected are of those lines
of products in which the entrepreneur or his colleagues have gathered
enough experience. The line in which they are not experienced
obviously would not be favoured much as it will entail uncertain
situations very often.
3. the selection of the product will also be based upon the degree of
profitability that generally rules in the market itself. The selection,
therefore, will depend upon the information compiled for the particular
line of product for its profitability.
4. Many concessions are available from the government for producing
a product which serves as an import substitute or even essential item,
hence if a particular product enjoys a
substantial amount of incentives, concessions, liberal taxation policies,
obviously the entrepreneur will select that item to enjoy these
advantage conferred on the production of this particular type of
product.
5. Many products belong to the priority industries or small-scale sector
also; certain products are listed by the Government for purchasing
exclusively from the small-scale sector. As a result if a particular
product belongs to this category, the selection of such a product would
be advantageous for the entrepreneur; therefore, these factors also
must receive due consideration before the selection of a product.
6. The market for the product also plays a significant role in the
selection of the product. If the product also has an export market, it
widens the scope of marketing; hence such a product has its own
advantages in the success of the enterprise.
7. Certain products are permitted for production only if the license is
obtained from the appropriate authority while others belong to the de-
licensed category. In the case of a licensed product, obtaining a licence
is obtained a license would be a difficult proposition or the capacity
required for the entire industry may also have been created fully by
the government. As a consequence, impossible of seeking further
permission for the product of such a product. A product belonging to
licensed category or de-licensed category also considered before
selecting the product.
8. Many products enjoy specific advantages in regard to the scale of
manufacture of carry locational advantages, e.g., if produced in a free
trade zone or in the backward areas with special incentives and
concessions which are made available for manufacturing such a
product. Selection of a product therefore depends upon these factors.
9. If a product belongs to an ancillary unit and serves as a major
component for the parent industry, it provides a ready demand; hence
selection of this type of product entails easy
marketability. Finally, at this stage, the selection of product would also
be weighed in favour or against depending upon whether or not the
machinery and the raw materials required would be imported or
indigenous. Similarly, the section would also be based upon the skill
and unskilled labour position as well as the technical knowhow, which
is available indigenously or would require foreign collaboration.
The study of the project idea is the starting point of the feasibility
analysis. The study is undertaken to identify the logic of the project,
the tasks which must be performed for achieving the objectives, and
the inputs, outputs and process involved in each activity. The ultimate
aim is to identify the characteristics of the project. Project idea poses a
problem, on the solution may be an appropriate one, it is necessary to
examine and appreciate the nature and extent of the problem and to
clearly identify its dimensions.

LECTURE-14

The Adoption Process

The adoption of an innovation demands planned management of


change (overcoming the resistance to change). An adoption process
bringing about a change in a buyer’s attitudes and
perception. Consumer adoption process covers the steps that a
consumer usually goes through in determining the feasibility of buying
new products; (1) Awareness, (2) Interest, (3) Evaluation or mental
trial, (4) Trial (physical), (5) Adoption.
1. Awareness: A person learns about a new idea, product or practice.
He has general information about it, e.g., through advertisement. He
has, however, limited knowledge about
special qualities, usefulness, performance, etc., regarding the
innovation. He merely knows about its existence.
2. Interest: He now develops an interest in the innovation. He
demands more detailed information about the new product, its utility,
its performance, and so on. He listens with interest to Jingles on the
radio or TV ads, reads press ads, and learns more about it from others,
and is now inclined to actively seek the desired information from sales-
persons, opinion leaders, peers, friends, etc.
3. Evaluation: The accumulated information and evidences are
weighed by the person in order to assess the basic soundness or worth
of the innovation. He tries to weight the value of the new product and
the extent to which it is good for him. In a sense, he conducts a mental
trial of the new product.
4. Trial: The person now is ready to put the idea into practice.
Competent personal assistance is necessary to put the innovation to
use.
5. Adoption: It is the final stage in which he makes a decision to buy.
The person now decides to adopt the new idea, product or practice for
continued use. If post-purchase experience is good, he becomes a
repeat buyer and a talking advertisement of the innovation.

Product Planning and Development


Strategy
Marketers have four alternative ways of brining about an increase in
sales and profits:
1. Market Penetration
2. Market Development,
3. Product Development
4. Product Diversification.

Four Basic Types of Opportunity for the Sales Growth


Market Penetration: It involves the expansion of sales of the existing
product in the existing markets by the selling more to present
customers or gaining new customers in the existing markets. The firm
can market its present products to existing markets. This is done
through a more aggressive marketing mix. Customers from rivals or
potential buyers can also be attracted. Existing buyers may be induced
to increase their rate of use. We may have a temporary price cut to
raise the volume of sales and penetrate the market in a big way.
Market Development: In market development, a present is
introduced to a new market or segment. Market development is the
creation of new markets by discovering new applications for existing
goods, e.g., Mini-bus may be made available for goods or passenger.
The firm can offer its existing products to new markets. This is another
alternative to expand market opportunity, prolog product life cycles,
profitability and survival.
Product Development: Product development occurs when a firm
introduces new products into a market in which it is well established
product development is the introduction of new
products in the present market, e.g., new synthetic fibres for known
textile products. The firm may decide to create new products for he
existing market. Established firms with high
customer patronage may have new product additions upon existing
market successes. The firm by offering new or improved products to
present markets can satisfy the present customers better and stand
assured of their loyalty.
Diversification: Diversification occurs when a firm seeks to enter a
new market with a completely new product, such a firm has neither
market expertise nor product knowledge. The firm may adopt a daring
strategy by creating new products for entirely new markets. The
innovations are introduced for the first time in the new markets. Only
innovations marketers venture to go in for diversification of products.
The strategy is risky but the innovator can have spectacular results. In
1960, Polaroid camera and television were in this category in many
countries. Microwave ovens and digital watches are novelties even
today in many countries. We have entirely an unfamiliar product for an
unfamiliar market. Factors rating for a new product introduction are:
(1) marketability, (2) durability, (3) Productive ability, and (4) growth
potential. Philips is an example of diversification or lateral integration:
light bulbs, radio lamps, television tubes, radio sets, tape recorders
and a wide range of luminaries or lamp shades. involved in the
process.

New Product Development Process (Innovation Management)

1. Product life cycle requires the product development programme for


new products and
new profit opportunities.
2. New product development must be carefully planned and managed.
3. Special organizational wing is necessary to stimulate, collect,
screen, evaluate, develop, test, and commercialize new product ideas.
4. Business analysis is the crucial stage. It concentrates an demand
analysis, cost analysis and
profitability analysis. It also considers social responsibilities of
marketing new product.

Many innovative ideas are needed to find one good idea worth for
commercialization and many new ideas fail to pass the screening
stage. Few ideas are compatible with the corporate resources and
goals. Finally, five ideas are eliminated for lack of profit potential.
Finally, having profitability, only one new product idea becomes
eligible for market introduction and officially enters its life cycle.
LECTURE-15

Product Planning and Development


Process

There are seven steps in the planning and development of a new


product:

1. New Product Ideas: We visualize the detailed features of a model


product. Ideas may be contributed by scientists, professional
designers, rivals, customers, sales force, top management, dealers,
etc. we need sixty new ideas to get one commercially viable product.
2. Idea Screening: We have to evaluate all ideas and inventions. Poor
or bad ideas are dropped and through the process of elimination, only
the most promising and profitable ideas are picked up for further
detailed investigation and research.
3. Concept Development and Testing: All ideas that survive the
process of screening (preliminary investigation) will be studied in
detail. They will be developed into mature product concepts. We will
have a precise description of the ideas and features of the proposed
product. At this stage, we can incorporate consumer preference into
out agenda for concept development and testing product ideas.
Concept testing the company to choose the best among the alternative
product concepts. Consumers are called upon to offer their comments
on the precise written description of the product concept, viz., the
attributes and expected benefits.
4. Business Analysis: Once the best product concept is picked up, it
will be subjected to rigorous scrutiny to evaluate its market potential,
capital investment, rate of return on capital,
etc. Business analysis is a combination of marketing research, cost-
benefit analysis and assessment of competition. We have demand
analysis, cost analysis and profitability analysis.
Business analysis will prove the economic prospects of the new
product concept. It will also prove the soundness and viability of the
selected product concept from a business viewpoint. Now we can
proceed to concentrate on product development programme. The
proposed product must offer a realistic profit objective.
5. Product Development Programme: We have three steps in this
stage when a paper idea is duly converted into a physical product. (a)
prototype development, giving a visual image of
the product, (b) consumer testing of the model or prototype, and (c)
branding, packaging and labeling. Consumer testing of the model
product will provide the ground for the final selection of the most
promising model for mass production and mass distribution.
6. Test Marketing: The entire product marketing programme is tried
out for the first time in a small number of well selected test markets,
i.e., test markets, i.e., test cities or areas. Test marketing is necessary
to find out the viability of a full marketing programme for national
distribution. Customer reactions can be tested under normal market
conditions. It helps the company to learn through trial and error and to
get additional valuable clues for product improvement and for
modifications in our marketing mix. We can use test markets for
testing the effectiveness of all ingredients of our marketing mix. Test
marketing can answer
such questions as: Is the new product labeled and packaged properly?
Does the consumer like the new product? Is the firm justified in
spending large sums on productive capacity?
Has the communication (promotion) programme been right? Positive
answers will reassure marketers.

7. Commercialization: Once the test marketing gives the green


signal for the product with or without expected modifications, the
company can proceed to finalise all features of the product. Now
marketing management can launch a full-fledged advertising and
promotion campaign for mass distribution. Mass production will start
and all distribution channels will be duly organized. The product is now
born and will start its life cycle in due course.

Project identification
is the first step of a new venture. A right direction may enable an
entrepreneur to scale new height. Otherwise, he to undergo a number
of hurdles in his way. It is therefore, very crucial to entrepreneurs to
identify project. We have made an attempt in this chapter to analyse
the various aspects of project identification.
Theoretically, n entrepreneur has an infinitely wide chaise with repeat
to this project. The important dimensions of choice are:
product/service, market, technology, equipment, scale of production,
location, incentives, and time phasing. The task ofidentifying a feasible
and promising project is somewhat difficult. Moreover it is interrelated
with the government policies, infrastructural development and skills of
people. Project identification is concerned with collection, compilation
and analysis of economic data for the eventual purpose of location
possible opportunities for investment and with the development of
such opportunities. Opportunities according to Drucker are of three
kinds: additive, complementary and breakthrough. Additive
opportunities are those opportunities, which enable the decision-maker
to better utilize the existing resources without in any an involving a
change in the character of business. These opportunities involve
minimum disturbance to the existing state of affair and hence the least
risk. Complementary opportunities involve the introduction of new
ideas and as such do lead o a certain amount of change in the existing
structure. Breakthrough opportunities, on the other hand involve
fundamental change in both the structure and character of business.
These opportunities involve minimum disturbance to the existing state
of affairs and hence the least risk. The element of risk is greater in the
case of complementary opportunities and is greatest in the case of
breakthrough opportunities. as the element of risk increases, it
becomes more and more important to precisely define the scope and
nature of the project objectives and to select the best possible
approach so as to minimize both resource consumption and risks and
to optimize the return or gains.
Human mind has an infinite capacity to observe and to innovate and
deduct. Observation is one of the most important sources of project
ideas. The observant mind continuously comes across situations, which
can be utilised to develop investment opportunities. The observation
may be made during the course of one’s routine occupation or
otherwise. The search of particular article or service may for instance
lead to the development of an industry which can provide the article or
service in short supply the availability of a specify type of raw material
or skill may lead to yet another type of industrial activity. The
observant mind is always on the look out for opportunities, which can
from the basis for the development of new project ideas. Observation
of the existing processes can sometimes lead to new opportunities and
financially beneficial project ideas. This would for instance be he case
when a processing unit decides to manufacture machines, which it has
so far been using for processing purpose only. The process of
deduction is on many occasions used to supplement and rationalise
project ideas based on pure observations. In innovation units, it often
becomes necessary to depend upon the educative process for the
development of new approaches to the solution of existing problems.
Trade and professional magazines provide a very fertile source of
project ideas. The statistics and information given by these magazines
and reports and records of professional bodies often reveal
opportunities, which can be eventually developed into investment
propositions. It is very important for every person who is involved in
the development of new investment opportunities to remain in touch
with the latest development in his own field of specialization. It is also
necessary for him to keep in touch with development in order fields
which may be horizontally or even vertically liked with his line of
specialization. Study of
technical and professional literature, besides keeping a person all
courant, also stimulates thinking and helps in the process of
development of new project ideas. Bulletins of Research Institutes are
also a very fertile source of information for new project ideas and
opportunities. These bulletins generally give the broad outlines of the
new processes or products developed by research institution. However
the information made available in the research Bulletin may not be
adequate for concretization of ideas. Further correspondence with the
research institute may become necessary. In most developing
countries were planned development has been accepted as an
approach towards the removal of poverty, the plan document
published by the Government provides a very useful source of project
ideas. The plan document generally analyses the existing economic
situation in a country and also
pinpoints the investment opportunities, which fit into the overall
planning effort. Considerable information can, therefore, be gathered
from the plan document. Departmental publication of various
department of Governments also provides useful information, which
can help in the development of new project ideas. Theses publications
are either periodical in character or are issued on special occasions.
The census document, which is a periodical, is a periodical publication
is a very useful source of information. About the economic structure of
the society and various trends in the growth of economy and
purchasing power and can be used to develop new ideas.

The project idea is a user-friendly concept of what a project should be


like. It is the raw expression of the desire of the project sponsoring
body to achieve something. The exact form in which the project idea is
expressed is immaterial. In order to avoid unnecessary
communications between the project ideas is expressed is immaterial.
In order to avoid formulation team, the project idea should indicate
objectives of the sponsor and limit these in time, space, function and
structure. In case no limitations are envisaged the sponsoring body
should state so and leave the project formulation team in no doubt
about it.

LECTURE-16

Criteria For Selecting A Particular Project

After gathering a large number of project profiles, the entrepreneur


should consider the following criteria for selecting a particular project.
Investment size: Professional managers, who have worked in
mulitinational companies or large Indian companies, should think of
starting medium-sized or large-sized unit only. The investment size
(project cost) should be at least Rs. 3 to 5 crore. They should not
commit the common mistake of restricting the project size to less the
Rs.2 crores so that they need go to all financial institutions. In fact,
under the present circumstance, it will be much easier to get project
clear by the all-India institutions requiring even lesser promoter’s
contribution.
Location: A new entrepreneur should locate his project to the extent
possible in and around the State headquarters. There are many
background areas around such cities. it is necessary to have such a
location so to attract competent managers. This will also facilitate
liaison with the State Electricity Board, State Industrial Development
Corporation and various other agencies.
Technology: The first project should not be for a product, which
requires high technology, necessitating foreign technical collaboration.
It is better to go in for product with a proven technology The
entrepreneur should select the best equipment as per that is
indigenously available. It makes life a easier to begin with.
Equipment: advice of experienced technical consultants. He should
not compromise on the quality of the equipment. Many entrepreneurs
enter into some sort of a deal with the equipment manufacturers for a
“kick-back” and in the process sacrifice quality. One should not be
shortsighted and come to grief by going in for poor quality equipment.
Marketing: It is not advisable to get into a project particularly the
first, which would mean survival amidst cutthroat competition
involving direct selling to the ultimate consumer. One should go in for
products with a limited number (say 10 to 20) of industrial customers.
Feasibility Report
Before starting a small-scale industry, it is mandatory for
entrepreneurs to consult the Director of Industries Service Institute
(SISI) located in one’s state. The SISI guides entrepreneurs as to the
type of industry to start, where to start and how to start it. The SISI
help them odd select the various items of manufacture which scope for
development in different areas. It suggests the lines on which project
reports for the propose units should be prepared for the consideration
of carious financial institutions with a view to securing financial
assistance. Similarly, technical guidance in the selection of proper raw
materials and type of machinery is also provided. A part from this, the
SISI gives valuable information on various incentives available to the
small-scale industries from various organizations.
Project Feasibility Analysis
A project feasibility analysis includes market analysis, technical
analysis, financial analysis and social profitability analysis. Although
every feasibility analysis is different and is tailored to
suit the product, its goal is to identify the existing strengths and
weakness of the project. The starting point of a project analysis is the
establishment of objectives to be attained. The next stage is the pre-
selection stage the advisability of having an in depth study. The
analysis stage
consists mainly of three factors- market, technical and financial
analysis.
A market analysis is a method of screening project ideas as well as
means of evaluating a project’s feasibility in terms of the market. A
market analysis should cover the following areas:
i. A brief market description including the market area, methods of
transportation, existing rates of transport, channels of distribution, and
general trade practices.
ii. An analysis of past and present demand, determination of quantity
value of consumption and identification of the major consumers of the
product.
iii. An analysis of past and present supply, broken down as source
(whether imported of domestic), as well as information to assist in
determining the competitive position of the product, such as selling
prices, quality and marketing practices of competitors.
The technical analysis of a project feasibility study establishes whether
the project is technically feasible or not, an whether it offers basis for
the estimation of costs. Moreover, it provides an opportunity for a
consideration of the effect of various technical alternatives on
employment, ecology, infrastructure demands, capital services,
support of other industries, balance of payments, and other factors. A
technical analysis should review the techniques or processes to be
applied and should incorporate
i. A description of the product, including specification relating to its
physical, mechanical and chemical properties, as well as the uses of
the product.
ii. A description of the selected manufacturing process, showing
detailed flow charts and presenting alternative processes which may
have been considered and the justification for the adoption of the
selected process.
iii. A determination of the plant size and production schedule, which
includes the expected volume for a given time period on the basis of
start-up and technical factors.
iv. Selection of machinery and equipment, including specifications,
equipment to be Purchased and its origin, quotations from suppliers,
delivery dates, terms of payment, and a comparative analysis of
alternatives in terms of cost.
v. An identification of plant’s location and as assessment of its
desirability in terms of its distance from raw material sources and
markets. For a new project, this part may include a comparative study
of different sites, indicating the advantages and disadvantages of
each.
vi. A design of the plant layout and an estimate of the cost of the
erection of the proposed buildings and land improvements.
vii. A study of the availability of raw materials and utilities including a
description of physical and chemical properties, quantities needed,
current and prospective costs, terms to payment, location of sources of
supply, and continuity of supply.
viii. An estimate of labour requirements, including a detailed break-
down of direct and indirect labour requirements, and the supervision
required for the manufacture of the product.
ix. A determination of the type and quantity of waste to be disposed of,
together with a description of the waste disposal method, its costs, and
the necessary clearance from proper
authorities.
x. An estimate of the production cost of the product. In the financial
analysis of this feasibility study, the emphasis is on the preparation of
financial statements, so that the project may be evaluated in terms of
the different measures of commercial profitability followed by the
magnitude of financing which requires the assembly of the market and
also technical cost estimated in various proforma statements. If it is
necessary to have more information on which to base an investment
statements.
If it is necessary to have more information on which to base an
investment decision, a sensitivity analysis or; possibly, a risk analysis
may be conducted. This financial analysis should include.
i. For projects that involve new companies, statement of total project
cost, initial capital requirement, and cash flows relative to the project
schedule. For all projects, financial projections for future time periods,
including income statements, cash flows, and balance sheets.
ii. For all project, supporting schedules for financial projection, stating
the assumption made as to the collection period of sales, inventory
levels, payment period of purchases and expenses, and the element of
production cost, selling, administrative, and financial expenses.
iii. For all projects, a financial analysis sowing returns on investments,
returns on equity, break-even volume, and price analysis.
iv. For all project, if necessary, a sensitivity analysis to identify items
which have a substantial impact on profitability or possibly a risk
analysis.
For the small entrepreneur, the studies conducted during the analysis
stage of the project provide the material for an assessment. If positive
result are obtained, the entrepreneur, in seeking finance, however,
having obtained positive conclusions from the economic feasibility
study will want to evaluate the element of social profitability.
The purpose of the investment or loan application is to convince a
lender (financial institution) that the project is a desirable investment;
that it not only possesses the potential for profit but that the proposed
management team has the capability to achieve the potential. The
investment proposal management team has the capability to achieve
the potential. The investment proposal normally contains:
i. General information on the product, company history, the nature of
the industry and the reputation and qualification of the existing or
proposed management.
ii. A description of the project, which usually consists of extracts from
economic feasibility studies and includes information on such items as
market, production, selected manufacturing methods (with detailed
indication of the cost of equipment and operational expenses), and a
financial statement.
iii. Miscellaneous information, such as the steps taken for the
implementation of the project and the qualifications of the technical
partners envisaged or selected.

PROJECT-17

What is Project Formulation?


Project formulation id defined as taking a first a look carefully and
critically at a project idea by an entrepreneur to build up an all-round
beneficial to project after carefully weighing its various components. It
is formulated by the entrepreneur with the assistance of specialists or
consultants. Project formulation is, therefore, a process whereby the
entrepreneur makes an objective and independent assessment of the
various aspects of an investment proposition of a project idea for
determining its total impact and also its liability by all means, this
strategy forms an important stage in the pre-investment phase that is
the period from the conception of an idea until the final analysis to
decide bout the future of a project formulation is to achieve the project
objectives with the minimum expenses in a short span of time.
PROJECT FORMULATION
undertaken, the type and size of the organisation, amount of
investment necessary and the time required for the completion of the
activities contemplated under the project.

Steps in Project Formulation


As mentioned earlier, a project comprises a series of activities for
achieving predetermined objective or set of objectives. In view of this,
to begin with the objective (s) of the project should be defined as
precisely as possible. The objectives may be social, economic or a
combination of both and they can be defined under the following
categories:
i. General objectives and
ii. Operational objectives.
A general objective merely states in broad terms the achievement
expected whereas an operational objective specifically mentions
results expected from the implementation of the project or scheme.
The definition of objective in clear terms helps in quantifying physical,
financial, human and other resources requirements.
Following this, the next strategy concerns itself with the location and
size of the project. The location of the project is influenced by the
availability or existence of various resource and the infrastructural
facilities. Examination of availability/existence of these
resources/facilities at one or more sites should lead to a decision on
the selection of the location of the project and thus facilitate
exploitation of the available resources/ facilities to the advantage of
the investor or the community at large or both.

Sequential Stages of Project Formulation

The process of project development has been categorised into seven


distinct and sequential stages. They are:
1. Feasibility Analysis.
2. Techno-Economic Analysis.
3. Project Design and Network Analysis
4. Input Analysis.
5. Financial Analysis.
6. Social Cost-Benefit Analysis
7. Pre-Investment Analysis
1. Feasibility Analysis: This is the very first stage in project
formulation. At this stage, the project idea is examined from the point
of view of whether to go in for a detailed investment proposal or not.
As project idea is examined in the context of internal and external
constraints three alternatives could be considered. First, the project
idea seems to be feasible, second, the project idea is not a feasible one
and third, unable to arrive at a conclusion for want of adequate data. if
it is feasible, we proceed to the second step, if not feasible, we
abandon the idea and if sufficient data are not available, we make
more efforts to collect the required data and design development.

2. Techno-Economic Analysis: In this step, estimation of project


demand potential and choice of optimal technology is made. As the
project may produce goods or services, it is imperative to know the
market for such goods or service produced. Market analysis is also in-
built in this step. The choice of technology itself will be based on the
demand potential and aid in project design. Techno-economic analysis
gives the project a unique individuality and sets the stage for detailed
design development.
3. Project Design and Network Analysis: This important step
defines individual activities, which constitute the project and their
inter-relationship with each other. The sequence of events of the
project is presented. A detailed work plan of the project is prepared
with time allocation for each activity and presented in a network
drawing. Project design is the heart of the project entity. this paves the
way for detailed identification and qualification of the project inputs, an
essential step in the development of the financial and cost-benefit
profile of the project.
4. Input Analysis: The step assesses the input requirements during
the construction of the project and also during the operation of the
project. In the earlier step, a project was divided into several activities.
Now it is better to see to the inputs required for each activity and sum
it up to get at the total input requirements on qualitative and
quantitative terms. Inputs include materials, human resources. Input
analysis, also considers the recurring as well as non-recurring resource
requirements of the project and evaluate the feasibility of the project
from the point of view of the availability of these resources. This will
aid in assessing the project cost itself which in turn in necessary for
financial analysis or cost benefit analysis.
5. Financial Analysis: This stage mainly involves estimating the
project costs, estimating its operating cost and fund requirements.
Financial analysis also helps in comparing various project proposals on
a common scale. thereby aiding the decision maker. Some of the
analytical tools used in financial analysis are discounted cash flow,
cost-volume profit relationship and ratio analysis. It is very essential to
take caution in preparing financial estimates. The objective of this
strategy caution is to develop the project taking into consideration
resources and also to identify these characteristics. Investment
decisions whether made for the provision of goods or services involve
commitment of resources in future. Since investment proposition has a
very long time horizon, it is absolutely necessary to exercise due care
and foresight in development project financial forecasts.
6. Cost- Benefit Analysis. The overall worth of a project is the main
consideration here. While financial analysis will go to justify a project
from the profitability point of view, cost benefit analysis will consider
the project from the national viability point of view. Here again, the
project design forms the basis of evaluation. When we talk of cost-
benefit analysis, we not only take into account the apparent direct
costs and direct benefits of the project but also the costs which all
entities connected with the project have to bear and the benefits which
will be enjoyed by all such entities. This strategy is now taken to be the
internationally recognized system of project formulation.
7. Pre-investment Analysis: The project proposal gets a formal and
final shape at this stage. All the results obtained in the above steps are
consolidated and various conclusions arrived at to present a clear
picture. At this stage, the project is presented in such a way that the
project-sponsoring body, the project-implementing body and the
external consulting agencies are able to decide whether to accept the
proposal or not. The sum total of the pre-investment appraisal o\is to
present the project idea in a form in which the project-sponsoring
body, the project-implementing body can take an investment decision
regarding the project.
Project Implementation
When a network design is prepared, the groundwork for the project
implementation is said to be in existence. In preparing the network
design, the Programme Evaluation Review Technique (PERT) and
Critical Path Method (CPM) are widely used. Briefly, it has already been
mentioned that to develop the project design, there is a need to
identify the project activities, determination of their interdependencies
and the geographical representation of the activities in a logical
sequence. This dimension will actually be the work plan for project
implementation. The network design also gives time and resource
requirement for each activity. The network design so developed
provides a monitoring aid and a controlling instrument. The design
helps in avoiding unnecessary expenditure leading to optimal
utilization of resources. For any type of project, the PERT/CPM can be
applied at the implementation stage. This network design when
developed will help in completing the project in time. Even though if
some activity is delayed, the project still has a chance of getting
completed in time by utilising the staff, if available. This is an
important technique of project management.

LECTURE-18

Project Evaluation

A part from looking into the financial viability of a project in terms of


investment costs and benefits, which accrue to the project directly, it is
necessary to consider the total impact of the project on the economy
of the nation. With a view to evaluate the project, the social cost-
benefit analysis is used. Most of the data required for the analysis
would have already been gathered in the earlier stages. Social cost-
benefit analysis does not look as just an investment proposition.
Whatever be the impact of the project on the nation, it is taken into
account just as the existing equilibrium of the economy. In the cost-
benefit analysis also, the extent to which the project to which the
project will help the society to improve its image or profile is indicated.
All costs and benefits can be classified into three categories as primary
costs and benefits, secondary cost and benefits and tertiary costs and
benefits. Primary costs and benefits is a category which will be
exclusively incurred and which will accrue to the project-implementing
body respectively. Secondary costs and benefits accrue to parties
other than the project implementing body. Most of the projects
contribute to the national exchequer by way of direct or indirect taxes.
Besides, a project has a direct impact on the community or the area of
operation. This is what is called the spill-over effects and multiplier
effect. Project can also have an impact on individual welfare.
While primary and secondary costs and benefits are quantifiable,
tertiary costs and benefits include all non-quantifiable spill-over and
multiplier effects. Where the impact cannot be quantified, it is stated in
descriptive terms. There are certain values, which cannot be quantified
at all.

A Project Report
A project report incorporating relevant data in respect of a project
serves as a guide to management and records merits and demerits in
allocating resources to production of specific goods or services. A
project report is prepared for analyzing the extent of opportunities in
the contemplated project. A project report is prepared by an expert
after detailed study and analysis of the various aspects of a project. It
gives a complete analysis of the inputs and outputs of the project. It
enables the entrepreneur to understand, at the initial stage, whether
the project is sound on technical, commercial, financial and economic
parameters.

PROJECT REPORT

Parties Interested in Project Report

Financial institutions and commercial bankers are the interested


parties in the project report, which is prepared for direct submission to
financial corporations, banks for getting loans. It
does not contribute substantially to future operations. The
entrepreneur gets the report prepared by a consultant. As such, these
parties providing term loans go for the report because it spells out how
production should be organized to yield maximum results.

Scope
Project report includes information on the following aspects.

1. Economic Aspects: The project report should be able to present


economic justification for investment. It should present analysis of the
market for the product to be manufactured. Market analysis basically
pertains to the following issues: (a) how big is the present market? (b)
How much is it likely to grow? (c) How much of the future market the
proposed project can capture after allowing a margin for future
entrants? It provides an analysis of the economics of production.
2. Technical Aspects: The appropriate report should give details
about the technology needed, equipments and machinery required and
the sources of availability.
3. Financial Aspects: The report should indicate the total investment
required including sources of finance and the entrepreneur’s
contribution. It should present a comparison of cost of capital with the
return on capital.
4. Production Aspects: it should contain a description of the project
selected for manufacture and the reasons for such selection; the report
should also give details of the design of the product.
5. Managerial Aspects: The report should contain qualifications and
experience of the persons to be put on the management of the job. It
the entrepreneur will look after management, the report must
emphasis as to how he is qualified to manage the venture.
Feasibility Reports Setting
A feasibility report or a project report of a new enterprise or of an
expansion provides, in general, primary economic information,
financial data and technical details which serve a finite number of
discrete economic processes or cost structures of the industry
concerned. Here, the economic processes are defined as combination
of vectors of material inputs and fuels (distinguished by supplying
sectors), labour (by types and skills), capital (by types of function and
capacities of categories), permitting different levels of output with
varying costs of production but subject to the constraint of industrial
capacities of the enterprise.

The “industrial profile” is a similar document, which also presents a


brief history and technical descriptions of processes in terms of
technical inputs coefficients for small-scale or medium or large-scale
manufacturers. Given these details, an entrepreneur is conversed with
the local market prices and relative prices of substitutes and
complements as to guide decision-making for sales and purchases; and
to enable to compute and check for profitability (social or private) of
the enterprise expansion or of a new plant.
A researcher is, however, converted with the computation of input,
capital and labour vector, based on the generally available contents of
the project report. Further, he examines from the report three aspects:
(i) Preparation of a number of possible alternative solutions to attain a
production target; (ii) Comparison of the alternatives and final
selection of them; (iii) Implementation of the project and scope for
economies of scale.
A number of possible alternative solutions of attaining a production
targets the result of studying available production techniques, of which
choice for the best, singly or in combination can be made. For
comparison of alternative solutions among a number of feasible
alternatives to the project, a criterion has to be chosen to achieve
substantial rate of return with a unique solution, sufficiently profitable
to justify the decision to carry onthe enterprise. However, the search
for such a choice depends on a number of studies of the individual
projects or of their combinations.
Tabular data which would appear in the feasibility reports and be of
considerable use for estimation and refinement, of input-out
coefficients, capital coefficients and labour coefficients vectors of the
different processes or sectors are available for reference in the
following figure. The feasibility report should contain the following
details: (a) promoters(s) of the project, (b) products(s) of the project,
(c) the level of output, (d) the raw materials used and the sources of
supply, (e) the technical production method selected and the location
of the plant, (f) the total cost of the project (in local currency and
foreign currencies), and (g) the proposed method of financing
(proportions of the various sources of capital) and legal structure of the
future enterprise, (h) the unit cost of the manufacture compared to
those at FOB or CIF prices, (i) the size of the market ( and the expected
trading profits), (j) the effects of the projects on the economy, public
finances and the labor
market, (k) the existence of the market: trends in imports, exports
income, prices, local producers etc, (l) possibility of producing at
reasonable cost, alternative methods and brief reasons for selecting,
(m) initial costs and costs of conversion: (i) investment costs and (ii)
operating costs, (n) commercial profitability to ensure repayment of
loans and a return on capital investment, (o) general information.

Contents of a Project Report


The following are the contents of a project report:

1. Objective and scope of the report.


2. Product characteristics (specifications, product uses and application,
standards and quality.)
3. Market position and trends (installed capacity, production and
anticipated demand, export prospectus and information on import and
export, price structure and trends).
4. Raw materials (requirements of raw materials, prices, sources and
properties of raw materials).
5. Manufacture (processes of manufacture, selection of process,
production schedule and production technique).
6. Plant and Machinery (equipments and machinery, instruments,
laboratory equipments, elastic load and water supply and the essential
infrastructure).
7. Land and building (requirement of land area building, construction
schedule).
8. Financial implications (fixed and working capital investment, project
cost and profitability).
9. Marketing channels (trading practices and marketing strategy).
10. Personnel (requirements of staff, labour and expenses on wage
payment).

The project report is prepared for submission to the financial


institutions for the grant of land and other financial concessions. An
entrepreneur can himself prepare the report; otherwise assistance
from experts can be sought. There are several organizations, which
help entrepreneur in the preparation of reports. The small Industries
Service Institute (SISI) and Small Industries Development Organization
(SIDO) help the entrepreneur in his regard. State the Government also
helps the entrepreneur in matter of financial assistance towards this
end.

Importance of a Project Report

Project report is of great importance. It highlights the practicability of a


project in terms of different factors like economy, finance, technology
and social desirability. It is needed by the entrepreneur for carrying out
expansion or starting a new production line. These may be carried on
by individuals like engineers and scientists, bankers or institutions,
consultancy services and development banks. An important aspect of
the report lies in determining the profitability of the project and
minimizing risks in the execution of the project.

LECTURE-19

Proforma of a Project Report

We give here a proforma of the Project Report.

Proforma for a Project Scheme for the Manufacture of –


1. Introduction Title/Name of the firm
a. Scope
b. Product (give specification, viz., ISS/BSS/ASS)
c. Process
d. Marketability
e. Location
f. Sources of finance/repayment schedule.
2. Scheme
a. Land and Building: (Owned/rented or leased)
b. Machinery and Equipment
(Give detailed specification/capacity/imported or indigenous). For
imported machine allowances (for duty on imported items, dock
clearance charges, freight and insurance and local freight)
c. Testing Equipment
d. Other fixed investments:
i. Packing and forwarding charges
ii. Electrification and installation charges
iii. Cost of tools/jigs/fixtures
iv. Cost of office equipment
e. Total Non-recurring expenditure (a) + (b) + (c) + (d)
f. Staff and Labor:
i. Indirect labor nos, and wages/p.m
ii. Direct labour nos, and wages/p.m.
Total salaries p.m. [(i) + (ii)]
g. Raw Materials and Consumables:
(Per month on single shift basis with specifications)
i. Indigenous Rs.
ii. Imported Rs.
Total: Rs.
h. Other items of expenditure:
(Per month on a single shift basis)
i. Power and water charges Rs.
ii. Advertising and traveling Rs.
iii. Transport
iv. Commission to distributors/agents
i. Total recurring expenditure: (f) + (g) + (h)
j. Working capital for 3 months 3 x recurring expenditure
k. Total investment required:
i. Non-recurring expenditure
ii. Working capital for 3 months
Total: Rs.
l. Total Cost of Production:
i. Total recurring expenditure
ii. Depreciation on machinery and equipment
iii. Depreciation on building
iv. Maintenance charges
v. Interest on total investment
vi. Welfare for staff Rs.
vii.Office stationery and postage, etc.
Total: Rs.
m. Profit and Loss Account:
i. By sale of … (qty.) of …@ Rs. ex-factory exclusive of
applicable taxes
ii. Cost of Production (1)
iii. Profit (i) – (ii) Approx. percentage of the total
capital employed Rs.
Total: Rs.
3. Profitability and Projections
(Generally for about 5 to 10 years)
Phase of activity
Profitability of phases
4. Infrastructure
i. Locational advantage
ii. Availability of material/power/water/labour
Break-Even Point
i. Fixed Costs:
(Executive salaries/depreciation/rent/interest on
investment and administration cost)
ii. Variable costs (direct labour/direct material/income-tax/
commission and administration costs)
Item of Cost Fixed + Variable Total
Materials Rs. Rs. Rs.
Labour Rs. Rs. Rs.
Other Expenditure Rs. Rs. Rs.
Q = F/P-V
Where Q = Break-Even Quantity
F = Fixed Cost
V = Variable Cost per unit
P = Sales Price per unit
5. Names and Addresses of Suppliers
i. Raw Materials
ii. Machinery and Equipment
6. Remarks
Seal and Date (Signature of the Consultant)
Project profile is a plan, which enables a new entrepreneur to
choose a suitable line of manufacture.
An entrepreneur usually finds it difficult to prepare this report
due to heavy consultancy charges. In such circumstances, a
project profile which is in the form of blueprints of different
business ventures come to his reuse. It gives full information
about the business opportunity of different projects.
Proforma of a Project Profile on a small printing press is given
below:
Product Introduction
A printing press can be started as a small business. The demand
for job printing is increasing rapidly as the publicity through
advertisements in papers, cartoons, pamphlets and booklets is
needed in marketing of almost of every product.
The various educational institutions and other establishments also
require printing facilities.
Process of Printing
The following is the process of printing:
i. The material to be printed is first of all composed by the
compositor.
ii. The composed material is then fed into the printing machine
and impressions are got on the paper by mechanical operation
of the printing press.
Accommodation Required
Floor Space 65 X 16 = 1040 square feet
Machinery and Equipment
The following machinery and equipments are required for a
printing press:
i. Chandeller type printing press (17" X 22") Rs.
ii. 2 H.P. Motor 3 Phase = 1 Rs.
iii. Rubber Roller = 1 Rs.
iv. Paper Cutting machine (42") = 1 Rs.
v. Proof Press (Roller) = 1 Rs.
vi. Types, spacing materials, stars, galleys, etc. Rs.
vii. Wooden type cases, racks, galleys, etc. Rs.
viii. Type = 100 Kgs. Rs.
Manpower Required
Supervisor 1 Rs.
Compositor 1 Rs.
Machinemen1 Rs.
Helper1 Rs.
Raw Materials
i. Papers Rs.
ii. Cards Rs.
iii. Inks Rs.
iv. Gums, etc. Rs.
Investment
i. Machinery and Equipment Rs.
ii. Working Capital for 3 months Rs.
iii. Total cost of production per year Rs.
Total production Per Year
i. Value Rs.
ii. Profit Rs.
iii. Rate of return Rs.
A project profile specifies all the requirements such as raw
materials, process of production, cost estimates, marketing
facilities, expenditure which may be incurred if the industrial unit
is to be established for operation. Project profiles can be prepared
by different agencies.
The Small Industries Development Organization has been
publishing model schemes on certain specific lines of production,
which provide immediate scope for development as small-scale
industries as well as other enterprises.
Conclusion
The project report must contain the various detailed information
which ultimately helps in the decision making process of whether
or not to encourage the project conceived. The financial
institutions insist upon such a project report in order to be sure
about the feasibility of the project. Since the financial
commitments would be huge in many cases, it is necessary that
before they advance the money, sufficient precaution should be
taken or else it would result in a huge loss in case an unprofitable
project is financed.
Also they ascertain from the report the possibility of generation
of funds by the project itself and whether or not it would be
substantial enough to repay the amount advanced within the
stipulated period also indicates the economic and commercial
viability of the project and whether or not adequate managerial
competence required for successful running of the enterprise is
available.
LECTURE-20
Project appraisal

Meaning
The exercise of project appraisal simply means the assessment of
a project in terms of its economic, social, and financial viability.
This exercise is critical as it calls for a multi-dimensional analysis
of the project that is, a complete scanning of the project.
Financial institutions and banks make a critical appraisal of
projects, which are submitted to them by the entrepreneurs for
getting loans. They have traditionally been accepting the data
provided by the entrepreneur as valid while assessing the project.
Aspects of project Appraisal
Definition
Project appraisal can be defined as the promoter taking a second
look critically and carefully at a project as presented by the
promoter person who is in way involved in or connected with its
preparation and who is as such able to take an independent,
dispassionate and objective view of the project in its totality as
also in respect of its various components. The person who carries
out appraisal of a project is usually an official from the financial
institutions or team of institutional officials. Since all ending
activities involve risk in a smaller or larger measure, project
appraisal aims at sizing up the quality of projects and their ling
term profitability aims at minimising the risk of lending by
rectifying their weaknesses and improving their quality by
incorporating into them features/ safeguards missed by the
promoters either because of lack of knowledge or information,
Scope of Appraisal
The appraisal of a project is undertaken by the financial
institutions with the twin objectives of determining the market
potential of a project and selecting an optimal strategy. The
methods of analysis vary from project to project, Nevertheless
certain common aspects of study from the angle of technology
and engineering are with a mention:
• Choice of technical process and/ or appropriate technology;
• Technical collaboration arrangements, if any;
• Size and scale of operations;
• Locational aspects of the project and availability of
infrastructural facilities.
• Selection of plant, machinery and equipment together with
background, competence and capability of machinery/
equipment suppliers;
• Plant layout and factory buildings;
• Technical Engineering Services
• Project design and network analysis for the assessment of
project implementation schedule;
• Aspects relating to effluent disposal, management of entry,
utilisation of by products.
• Project cost and its comparison with other similar projects,
based on technology, equipment, product mix and
time spread;
• Determination of project cost estimates,
profitability projections, etc,
• Sensitivity analysis
It must be remembered that the different aspects
of a project are not independent entities but are
highly inter-related; and a meaningful project
appraisal depends upon the appreciation of this
fundamental fact. For example, the size of the
total market for a product as it exists now and the year to year
estimates of the future progressive call for expansion of demand
would determine planned capacity of the proposed unit and the
phasing of production over the years.
These in turn would influence the project cost and profitability
which would determine the means of financing .The cost of the
project and profitability are influenced to a significant extent by
its location, Over and above this, the management behind the
project, has a decisive role to play in almost all aspects of the
project

Steps Followed in Project Appraisal

Project appraisal is a scientific tool. It follows a specific pattern.


First and foremost, an analysis of a region’s economy provides a
general framework within which the assessment of any project is
made. This analysis indicates whether the project is in a potential
environment, which enjoys priority for economic development of
the region/ state concerned. This exercise itself usually involves
the investigation of six different aspects; economic, technical,
organisational, managerial, operational and financial. The relative
importance of these different aspects can vary considerably
according to circumstances and type of project. The main stages
of the system of project appraisal are:
Step 1 Economic Indicates priority use.
Step 2 Technical Involves scale of the project and the
process adopted.
Step 3 Organisational Suitability is examined.
Step 4 Managerial Adequacy and competence are
critically scrutinized.
Step 5 Operational Capability of the project.
Step 6 Financial Determines the financial viability for
sound imple mentation and efficient
operation.
Project Appraisal Format
Criteria Project 1 Project II Project III Project IV
1. Investment size
2. Location
3. Technology
4. Equipment
5. Marketing
6. Power & Water
7. Others’perfomance
8. Working capital needs
9. Labour component
10. Economic viability

Economic Aspects
The economic aspects of appraisal are fundamental as they
logically precede all other aspects—— This is so because the
bank will not finance a project unless it stands assured that the
project represents a high priority use of a region’s resources.
However, a purely financial analysis normally does not provide an
adequate basis for judging a project’s value to the economy. Since
the financial analysis looks at the project only from a limited
viewpoint of the revenues entering the project’s own accounts, So
an economic or social analysis looks at the project from the
viewpoint of the whole economy, asking whether the latter will
show benefits sufficiently greater than project costs to justify
investment in it.
The economic benefits brought about by a successful project
normally take the form of an increased output of goods or
service, either directly of indirectly as in a large class of cost
reducing projects. This increased production will also generate
many different forms of additional income, such an increased
wages or employment of labour, larger government revenues,
higher earnings for the owners of capital. Or most frequently a
combination of these income benefits.
In a large majority of cases, it is possible to quantify project costs
and benefits, and to construct a rate if return or some other
appropriate move. Future costs and benefits are calculated, using
either market or shadow prices as found appropriate. Further
both costs and benefits are put under subsidence to initiate the
projects’ estimated rate of return,The latter is then compared
with the minimum earning power capital judged appropriate for
each country, While the rate of return is an important test that all
projects with quantifiable cost and benefits must pass, importance
and its significance is usually overestimated.
The rate of return is a necessary confirming test of projects that
have to be justified within a much wider frame of reference, in
which basic project objectives and the nature of project benefits
e.g. foreign exchange savings, increased employment and improved
income distribution play major roles.

Organisational Aspects

As a lender and a development institution, the bank places


particular stress on the need for an efficient organisation and
responsible management for the execution of the project. During
appraisal, these two essential dimensions of a project are
examined. If one or the other is found wanting, short term
remedial steps are recommended to the entrepreneur and the
bank may make a clause for assistance such as the recruitment of
individuals or an organisation qualified to assist in running the
enterprise, at least during the initial phase; or those for a longer
term such as a management study, reorganisation or creation of a
new autonomous agency to operate the project.
In either case, the need for training local staff to fill positions at
all levels is examined, and training progammes may well be
included as part of the project. The objective of this aspect of
appraisal is to make sure that the product is adequately carried
out and that a locally staffed institution, capable of contributing
effectively to the development of the sector in question, is
created.

LECTURE-21
STRUCTURE ORGANISATION RECRUITMENT TRAINING
ORGANISATION

Organisational aspects

Managerial Aspects
It the management is incompetent, even a good project may fail.
It is rightly pointed out that if the project is weak, it can be
improved upon, but if the promoters are weak and lack in
business acumen, it is difficult to reverse the situation. It is,
therefore natural financial institutions very carefully appraise the
managerial aspects before sanctioning assistance for a project.
It may be relevant to recall here that there are provisions which
enable financial institutions to exercise control over the assisted
into equity in respect of loans aggregating to Rs. 5 crore or more
generally, and in respect of sick units, irrespective of the amount
of assistance and the level of shareholding in the assisted
company.
Further there is a provision for appointment by the financial
institutions of nominee directors on the boards of all MRTP
companies assisted by them. As regards non- MRTP companies,
nominee directors are appointed on the boards on a selective
basis, especially in cases where one or more of the following
conditions exist, viz; a the unit is running into problems and is
likely to become sick, b institutional holding is more than 26 per
cent and (c) the institutional stake by way of loans /investment
exceeds Rs.5 crores.
The Companies Act, The Industries Development and Regulation
Act, etc; empower Government to exercise power of control over
the management, including the take over of management of
industrial undertakings.
All these indicate the importance given to proper managerial
strategies to prevent mismanagement.
If a proper appraisal of the managerial aspects is made in the
beginning itself, future problems in these areas can be avoided to
a very large extent. It is, therefore necessary that the overall
background of the promoters, their academic qualifications,
business and industrial experience, their past performance, etc are
looked into in greater detail to assess their capabilities for
implementing the project for which financial assistance has been
sought.
Technical Aspects

The importance of technical appraisal in project evaluation needs


no emphasis. Technical appraisal of a project broadly involves a
critical study of the following:

Location and Site

An industrial feasibility study aspect refers to the appropriate and


location selection of a geographical area where the project should
be located the selection. Towards this end the required site
characteristics shall be kept in mind while selecting the location.
There are a number of important factors that influence industrial
location because the site may significantly influence the cost of
production and distribution, distribution efficiency, the operating
environment, etc.
The problem of site selection gets complicated by the fact that at
a particular location where one or a few factors ate favourable
therefore, revolves round the combined consideration and
evaluation of all the relevant factors.
The important factors that influence industrial location ate the
following:
1. Raw Material Supplies: Certain industries are located near the
source of raw materials. This is particularly true of industries
based on gross localised material industries with a high
Material Index [the proportion of the localised material to the
final product] . For example, iron and steel mills are usually
located near the ore deposits and sugar mills in the sugarcane
cultivating regions. Similarly the timber industry tends to be
closer to forests or river ways leading from forests. Kallayi
[near Calicut, Kerala] one of the largest timber business
centres of the world, is on the banks of the Chaliyar river
leading from the richly endowed Nilambur forests. In certain
cases, even industries based on pure materials prefer to be
located near source of raw materials. The jute industry in
India, for example, is developed in the jute-growing region.
Similarly, the early development of the cotton textile industry
was in the cotton-growing region.
Industries using perishable raw materials also tend to be
located in closer proximity to the raw material sources.
2. Proximity of Markets: Certain categories of industries tend to
be located near the market. This is particularly true of the
industries with the manufacturing process that involves an
increase in weight and /or bulk. In such cases, the transport
and distribution costs can be minimised by being closer to the
market. Bottling of drinks is a very good example. Industries
with fragile and perishable output also have a tendency to be
located closer to the market.
When there are large markets geographically spread,
nationally or internationally, manufacturing units may be
established in close proximity to the major markets.
3. Transportation Facilities: Transportation facilities including
the cost of transport play an important role in industrials
location. No wonder, centers connected with sea, air, rail and
road transport facilities exert as strong pull on industries. It is
not only the transportation facilities for the personnel.
In a vast country like India, there may be significant variations
in transportation costs between different locations.
Places with a high transport disadvantage are not likely to attract
industries. It is due to this reason that the Government of India
is providing transport subsidy to the industrial units located in
certain hill regions and islands with a view to encouraging the
industrial development of these regions.
4. Power and fuel Supply: power and fuel supply conditions
have an important bearing on industrial location. Cheap
power or fuel and its uninterrupted supply is an important
attraction for industries, especially in the era of energy crisis.
In the past, certain industries tended to be located near coal
deposits. But the advent of electricity has greatly changed the
industrial location patterns. Now, it is not very difficulty to
take power supply to the location of raw material supply so
that weight-long material may by processed at their location.
Electrification of various parts of the country, including the
villages, is encouraging decentralization of industries.
5. Water: Certain industries like the paper industry by their very
nature require large quantities of water. The quality and
properties of the available water is as important as the
quantity of water available and the stability of its supply. A
number of industries also use the water sources for effluent
disposal. While selecting the location, the possibility of the
pollution of water by other industries making the water unfit
for industrial and domestic purposes should also be
considered. The requirements of water by the employees and
their families housed near the industrial unit for domestic
purposes and its availability should also be considered.
6. Manpower: The economic, social and political aspects of
labour supply have an important influence on industrial
location. Not only the quantity but an assessment of skill
levels of the available manpower are very important. In
certain regions, abundant cheap labour may be available, but
if the labour does not possess the required skill, the industry
will have to incur expenditure on training the labour.
Cheap labour is particularly important for industries where
labour accounts for a significant part of the total value added.
On the important factors influencing the location of plants in
the less developed countries by the multinationals (MNCs) is
said to be the cheap labour supply.
For the assessment 5o be realistic, it is essential that the wage
rates be compared with the level of productivity by the
labour.
Certain socio-economic characteristics and political
affiliations of labour are also important considerations. In
certain localities and communities, labour turnover and
absenteeism are high. These factors may not only tend to
increase the expenses but also affect the smooth functioning
of the enterprise.
Some regions may be characterised by the dominance of
militant trade unions, widespread labour unrest, etc, seriously
affecting the smooth functioning of industries. Industries
prefer to consider other areas for their location.
It may be difficult to get professional, skilled manpower etc,
if the location is very remote and deprived of civic amenities.
7. Labour Laws and Government Policy: Labour laws and the
government s attitude and policy toward strikes and other
labour problems and employee-employer relation, etc, may
also influence location decision-making.
8. Natural and Climatic Factors: Natural and climatic factors
also play an important role in the location of certain
industries, as the absence of these conditions will necessitate
additional expenditure to create favourable conditions
artificially. For instance, humid climate is conducive to cotton
textile industry. Favourable climatic conditions and other
environmental factors played a major role in the location
these industries.
9. Strategic Considerations: They also influence the location of
industries. It is not likely that major industries will be located
in strategically sensitive areas even if all economic factors
favour such a location. Especially in the case of strategic
industries, special care is taken to assure that the location
chosen is not easily accessible to the military forces of other
countries. For defence industries, strategic location may be
the sole criterion.
10. Taxes and Fees: Variations in taxes, fees and charged may also
influence industrial location.
11. Incentives and Disincentives: There are also certain
incentives and disincentives, which also may affect industrial
location. For instance, in India, the Union and State
Governments offer a number of fiscal, monetary and physical
incentives for industries in the notified backward regions.
Certain disincentives like higher taxes may discourage
industries in certain regions. Government may even ban new
industrial units in congested areas large urban areas or
developed regions.
12. Site and Services: Some industries require a large area of land
wh9ich may not be available in a locality where all other
factors are favourable. Availability of the required type and
quantity of land at reasonable prices is, thus, an important
factor.
With a view to developing industries in certain regions,
Government has been providing developed sites and
necessary facilities and services. Certain such locations like
Hosur (Tamil Nadu) have been very successful in luring
industries.
Similarly, industrial estates have been established in different
parts of the country to encourage the development parts of
the country to encourage the development of industries.
13. Socio-economic and Political Factors: Socio-economic and
political factors are also sometimes very important, especially
in respect of location of public sector units. Some large-scale
public sector units are located in backward regions on such
considerations. Social and political considerations sometimes
favour industrial location in certain sensitive regions.
14. Miscellaneous Factors: There are also a number of other
factors the may influence industrial location -the attitude of
the local community, proximity of complementary industries,
prospects of development of the region, service facilities
required by the industry, recreational and social facilities,
proximity of required by the industry, recreational and social
facilities, proximity to important centers like metropolitan
centers, personal factors, historical factors, etc.

LECTURE-22
Site
There are a number of important factors to be considered in the
selections of the site. These include the load bearing capacity of
the site, towards flood and earthquake hazards, access to
transport facilities, facilities for water supply and effluent
discharge, ecological factors, etc.
The nature of the industry has bearing on the site selection. For
example, some industries like the paper industry need abundant
supply of water. For some industries, effluent discharge is major
problem. Environmental pollution is a serious problem that
certain industries have to confront with all these factors influence
the selection of site.
As stated earlier, the Government provides site and service in
specified locations. However, some of the facilities needed for
certain industries may not be available on these sites.
Size of the Plant/Scale of Operation
The size of the plant or scale of operations is an important factor
that determines the economic and financial viability of a project.
In many industries, there are certain technological plant capacities,
which are economical. If the size is sub-optimal, there will be
diseconomies of scale.
This is one of the important reasons for poor performance of
many industrial units in India. Diseconomies of scale result in
high cost and make survival in a competitive market, particularly
in the international market, very difficult. The government of
India in this context, has emphasised that the plants or scale of
operations should be of economic size.
An important aspect of technological size is that the available
process technology and equipment are often standardised at
specific capacities in production sectors. Operative capacities in
such sectors are, therefore, available only in certain multiples.
There are, however, certain factors that may come in the way of
optimal scale. For example, there may be demand constraints, i.e.
the market demand may by too low that it cannot absorb the
output of the large plant in some cases there may be resource and
input constraints. For example, the available raw material in a
region may not be sufficient to feed a large plant. When there is
important control, non-availability of economic size plants or
equipments domestically makes the adoption of optimal scale
impossible. Sometimes, there will also be scarcity of finance.
Another factor that may discourage the establishment of largescale
facilities is the risk of rapid obsolescence of technology or
the product.
Technical Feasibility
Appraisal of ethnical aspects of a project involves scrutiny of
such aspects of the project as:
• Manufacturing process/ technology selected.
• Technical collaboration arrangements made, if any
• Capacity/size of the project and the scale of operations.
• Location of the project.
• Availability of physical and social infrastructural facilities.
• Availability of various inputs covering raw materials as well as
utilities.
• Selection of plant, machinery and equipment together with
background, competence and capability of machinery/
equipment suppliers.
• Plant layout/and factory building
• Technical engineering services.
• Project design and network analysis for assessing the project s
implementation schedules, etc.
The technical feasibility study should consider the adequacy and
suitability of the plant, the equipments and their specifications,
plant layout, balancing of different sections of the plant,
proposed arrangements for procurement of the plant and
equipments, reputation of the machinery suppliers, etc
The feasibility study should also consider the technology required
for a particular project, evaluate technological alternatives and
select the most appropriate technology in terms of optimum
combination of project components. The various implications of
the acquisition of such technology should be assessed, including
contractual aspects of technology licensing where applicable, etc.
Government of India s policy in this respect clearly states that
while evaluating applications for industrial licensing, the following
factors will be specifically considered:
i. Whether the proposed capacity is of economic size
ii. Whether the processes proposed to be adopted are efficient
from a technoeconomic point of view.
iii. The extent to which diversification and expansion proposals
will result in fuller utilisation of capacity and economies of
scale.
Besides, proper evolution of alternative technologies is essential
for selection of the appropriate one. This evaluation should be
related to plant capacity and should commence with quantitative
assessment of output, production build-up and gestation period
and qualitative assessment of product quality and marketability.
The selection of technology has to be related to the nature of the
principal inputs that may be available for a project and to an
appropriate combination of factor resources for both short and
long periods.

Financial Aspects

Financial Aspects of Project Appraisal


The purpose of the appraisal of financial aspects of a project is
generally to ensure its initiation of financial conditions for the
sound implementation and efficient operation. The scope of this
aspect of appraisal varies, of course, considerable with the nature
of the project and whether it is revenue producing (e.g., industry,
utilities, agriculture) or not (e.g., education, most highway
projects).
For projects, which involve the marketing of a product or service
by an entity, the appraisal includes in investigation of the
availability and cost of raw materials, power, labour, and services
needed for production, and the prospects for marketing the
product or service profitably.
In every case, it is necessary to ensure that satisfactory accounts
are maintained for effective control over expenditure and revenue,
and to disclose the project and entity carrying it out also, since the
banks finance only a part of the investment cost of a project, it is
necessary to ensure that funds from other sources are available on
acceptable terms to meet the balance of the cost. This may be
relatively simple where the government is able, without difficulty,
to provide the rest of the necessary funds from budgetary
sources, or it may be complicated, as in a project to expand or
modernise a revenue-earning concern, where all the financial
requirements of the concern during the construction of the
project must be considered.
Financial appraisal also evaluates capacity of revenue-producing
investments from the standpoint of the entity. Industrial sponsor
or other investor, who would make them, in order to ascertain
whether it is sufficiently attractive to warrant their participation
establishing that the entity carrying out the project is in a position
to manage its business in a cost-effective fashion, is another
important aspect.
The financial aspect of project appraisal covers the following
areas:
i. Cost analysis: In the case of cost analysis it is to be decided
or to be worked out what would be the cost of production.
There are different methods of finding out cost.
ii. Pricing: This strategy concerns the fixing up of the product’s
price. Price fixation is a very tedious job. The price must be
fixed very judiciously, because the price is the cause of
demand. If the price is high, the demand may be low and vice
versa and a low price may mean a lower rate of profit also.
iii. Financing: The fund needed to finance the project is an
important aspect of project appraisal. It is concerned with
raising the funds and making their most efficient use. The
funds must be raised from places where the rate of interest is
lower.
iv. Income and Expenditure: The income and expenditure
profile is concerned with the estimates regarding the income
expected and expenditure involved in the project. This helps
in ascertaining the cost involved in production and profit
expected there from. Detailed proposed accounts should be
made for future reference to know whether the plans are
working out properly or not.
Financial institutions examine the project to ensure economic
justification of investment details. They study the marketing
scope of the project and also its worth to the national economy
by analysing the consumption pattern and the potential demand
for the project.

LECTURE-23

Market\Commercial Aspects

In setting up an industrial project, estimation of demand for the


product\ group of products proposed to be manufactured by a
promoter is the first important step. Ideally, the market analysis
should give a comprehensive account of the market opportunity,
as well as of the marketing strategy appropriate for converting the
opportunity into a reality, Marketing strategy in this context could
be defined as an ever evolving design or blueprint consisting of a
set of inputs like product quality, price, design, dealer\agency
discounts, distribution network\ channels, packaging, etc.
To be of maximum benefit to a promoter, whether new or
already established, market analysis should cover the following
major aspects
(i) Analysis of market opportunity and specifying marketing
objectives. This involves a scientific assessment of (a) total
size of the market for a product; and (b) the share that could
be secured by a firm, existing or new.
(ii) Planning the process of marketing the product.
(iii) Organisation of the marketing process.
(iv) Control of the implementation of the marketing plan, which
facilitates taking corrective action when the actual results
deviate from the estimates or expectations.
An intensive scanning and analysis of the proposed environment
in which the industrial unit has to function should from the basis
for analysing market opportunities as well as for specifying the
marketing strategy. This is because the ever changing environment
in which the industry sector functions, restricts or expands the
opportunities available to and the threats to be faced by an
industrial unit.
Market opportunities expressed in terms of demand forecasts
and market shares are based on a host of factors outside the
control of the promoter, whereas marketing strategy and
marketing process are largely under his control. Hence, the
formulation of a detailed marketing plan, specification of a
proper marketing strategy, and the manner in which the marketing
process should be undertaken would enable the promoter to cope
with the uncertainties in the market place more effectively than
otherwise. It is also a fact that the estimated markets share of a
promoter and his marketing strategy influence and reinforce each
other and should never be viewed in isolation.
Answers to the following questions would indicate the safeguards
that may be necessary to t5rake in the likely weak areas in the
project:
i. What is the management culture in which the entrepreneur
has been brought up?
ii. Is the entrepreneur s approach to project planning scientific
and consistent with the requirements of the proposed
project?
iii. In the initial stages of project planning, is the entrepreneur
enlisting the support of mere helpers or of professional
managers?
iv. How has the entrepreneur drawn the organisational structure
of the unit? Does it show ad hocism or indicate that he has
tried to merely fulfill certain legal/other obligations or is it
purposeful and des it indicate a good deal of foresight on his
part?
Political and Labour Considerations
Financial institutions also pay attention to political environment
and labour conditions of the area where the project is to be
located. Strikes. Lockouts, industrial peace and communal
harmony in the area play a decisive role in examining success or
failure of the project.
The lending institutions examine the project to study its soundness
on technical, economic, commercial and managerial grounds.
If the appraisal report is found satisfactory, the loan application
will be favourably considered. The manager then communicates
his decision to the borrower and terms and conditions will be
negotiated.
The most important areas for the borrower and lender to
negotiate are timing in relation to negotiations method of
financing based on certificates of work done, repayment schedule,
rate of interest, commitment fees, security options, and
monitoring and control requirements.
Technical Collaboration Arrangements

The Government of India has issued an illustrative list of


industries where no foreign collaboration, financial or technical, is
to be allowed in view of indigenous technology base having been
well established. However, looking to the need for constant up
gradation of production technology in line with that of
developed countries, the Administrative Ministries and Foreign
Investment promotion Board (FIPB) may permit import of
technology in those field where:
• indigenous technology developed for items in the list is too
closely held and is not available for use by new entrepreneurs
on competitive terms:
• technology is required for updating of existing technology in
India to meet domestic requirment efficiently or to be
competitive in the export market; and
• such import is required for the manufacture of items with
substantial exports, backed by buy-back guarantees.
The terms in the collaboration agreement are examined in detail
by the appraising institutions with reference to the technical
know-how, engineering services, procurement of imported
equipment, price comparison with indigenously available
equipment, performance guarantee by the collaborators, penalties
for non-performance specified in the agreement, deputation of
foreign exports during construction, initial and post operation
period, provision for training of Indian technicians etc.
The reputation of the collaborators and past experience concerning
tie-up arrangements with them, the project, the reasonability
of financial collaborations and other costs by way of down
payment and royalties as also restrictive clauses in regard to
marketing areas etc., are also looked into and worked upon by the
appraiser.
In the case of financial collaboration, the terms relating to the
right of participation of foreign collaborator in management and
future issues of share capital are also critically examined and
considered. The financial standing and reputation of collaborators,
where necessary, are checked through the Indian
Consulates/Missions abroad as also through the India Investment
Center.
Research and development is also studied in depth and it is
ensured that during the validity of the collaboration period, the
borrower is allowed free access to the latest developments that
may take place at the collaborator end. The collaborators are also
required to agree for providing facilities to the borrower in
establishing his own up-to-date R& D organisation, both in terms
of equipment and manpower.

LECTURE-24
.
Concept of Financial Analysis

Financial analysis is defined as the process of discovering


economic facts about an enterprise and/or a project on the basis
of an interpretation of financial data. Financial Analysis also
seeks to look at the capital cost, operations cost and operating
revenue. The analysis decisively establishers a relationship
between the various factors of a project and helps in
maneuvering the project’s activities. It also serves as a common
measure of value for obtaining a clear-cut understanding about
the project from the financial point of view.
An analysis of several financial tools provides an important basis
for valuing securities and appraising managerial programmes.
Financial analysis is vital in the interpretation of financial
statements. It can provide an insight into two important areas of
management-return on investment and soundness of the
company’s financial position. David Hawkins observes that the
analyst evaluates results against the particular characteristics of
the company and its industry. He seldom expects answers from
this process; but he hopes that it should provide him with clues as
to where he should focus, his subsequent analysis.
Internal management accounts provide information, which is
valuable for the purpose of control. The information is made
available in the form of accounting data, which may be manifested
as financial is made accounting statement. A financial
analysis reveals where the company stands with respect to
profitability, liquidity, leverage and an efficient use of its assets.
Financial reports provide the framework within which business
planning takes place.
They are the key through which an effective control of a business
enterprise is exercised. It is the process of determining the
significant financial characteristics of a firm. It may be external or
internal. The external analysis is performed by creditors, stockholders
and investment analysis. The internal analysis is
performed by various departments of a firm.

Significance of Financial Analysis

Financial analysis primarily deals with the interpretation of the


data incorporated in the proforma financial statements of a
project and the presentation of the data in a from in which it can
be utilised for a comparative appraisal of the projects. It is, in
effect, concerned with the development of the financial profile
of the project.
Its purpose is to find out whether the project is attractive enough
to secure funds needed for its various constituent activities and
once having secured the funds, whether the project will be able to
generate enough economic values to achieve the objective for
which it is sough to be implemented. It deals not only with the
financial aspects of a project but also with its operational aspects.
As such, it is necessary to undertake such an analysis not only in
the case industrial project but also in the case of non-industrial
project.
Analysis of financial statements has become very significant due
to the widespread interest of various parties in the financial
results of a company. In recent years, the ownership of capital of
most public companies has become broad-based.
A number of parties and bodies, including creditors, potential
suppliers, debenture-holders, credit institutions like banks,
industrial finance corporations, potential investors, employees,
trade unions, important customers, economists, investment
analysis, taxation authorities and Government have a stake in the
financial results of a company. Various people look at the
financial statements from various angles. A number of techniques
have been developed to undertake analysis of financial statements
in order to reach conclusions about the financial health, profitability
and efficiency of an enterprise and also to compare an
enterprise with other similar undertakings. The technique of ratio
analysis is the most important tool of financial analysis. It helps
in comparing the performance of various companies and judge
their financial soundness.
Utility of Financial and Accounting

Statements
Financial statements play a vital role in the internal financial
control of an enterprise. These should, therefore, be properly
constructed, analysed and interpreted by executives, bankers,
creditors and investors. The following factors enhance the utility
of financial statements:
1. Large-Scale Production: The ability to analysis financial
report is essential bridging the gap in personal relationship
created by the size of business units.
2. Regulatory Provisions: Financial statements are often required
by Government regulations Accounting procedures are
standardised to obtain correct and adequate data for the
construction of financial statements.
3. Income-Tax Accounting: The income-tax authorities insist on
the maintenance of proper and suitable accounting records.
4. Executives: Executives need information so that they may be
in a position to plan for profits and ensure a sound financial
condition for the firm. Financial statements serve the
business executive as gauges and charts serve the engineer.
5. Bankers: The banker seeks liquidity, but looks upon his
debtors not merely as clients but also as ordinary customers.
His analysis has, therefore, to be thorough.
6. Investors: Whether buying an interest in a firm or purchasing
the securities of a corporation, the investor’s interest in the
enterprise is continued for a number of years.
7. Mercantile Credit: Mercantile credit refers to the grant of
credit by one merchant to another. The usual object of
granting credit is to enable the customer to have some time in
which he many realise his dues on the merchandise he has
sold.
The entire future of a company hinges on the manager’s ability to
decide relevant financial data with a view to planning profit ability
moves. Learning to read financial statement is the first essential
element in any businessman’s attempt to acquire financial
management skills. The change in the elitism of stock ownership
to broad public ownership has necessitated a concomitant change
in the entire process of reporting corporate financial results.
The role of management in the matter of preparation of financial
statements is to add understanding to these statements, the
fairness of which is to be viewed through the eye of the user,
wile that of the accountant is to close the communication gap
and of the auditor to add credibility to them. For evolving a good
economic information system, accounting innovations are of
great economic information system; accounting innovations are
of great important.
Without these, communication with the financial community
would be difficult, the interest of present and future potential
investors would not be served, the ability of the company to raise
additional capital would be impaired and the government’s
regulatory measures and policies would not serve the best
interests of society. Though a financial statement reveals less than
it conceals, it provides the indicators of the indicators of the
enterprise’s performance during the year.
Financial analysis seeks to spotlight t significant facts and
relationship concerning managerial performance, viz., corporate
efficiency, financial strengths and weaknesses and credit worthiness
of the enterprise.

LECTURE-25

Financial Tools

Financial tools are of immense use to entrepreneurs in carrying


out his planning and controlling function. The financial tools are
helpful to top management, creditors investors, and labourers.
The principal financial tools are:
i. Trend Analysis
ii. Variable Analysis
iii. Ratio analysis
iv. Funds Flow Analysis
v. Break-even analysis
vi. Common size statements
vii. Cash Budgetary and
viii. Proforma statement

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