Professional Documents
Culture Documents
CONCEPT OF ENTREPRENEURSHIP,CHARACTERISTICS OF
ENTREPRENEURS
UNIT I
ENTREPRENEURSHIP
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.
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?
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.
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
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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.
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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.
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Motivation
Challenge of Motivation
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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.
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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.
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.
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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 :
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Introduction
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Entrepreneurship DevelopmentProgramme
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.
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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.
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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;
Methods of Training
The following are the important methods by which training may be
imparted:
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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
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
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.
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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.
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PROJECT-17
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Project Evaluation
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
Scope
Project report includes information on the following aspects.
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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
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
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
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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
LECTURE-23
Market\Commercial Aspects
LECTURE-24
.
Concept of Financial Analysis
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