MANAGEMENT & ENTREPRENEURSHIP (VTU) - 10AL51

UNIT - 8

PREPARATION OF PROJECT: Meaning of Project; Project Identification; Project

Selection; Project Report; Need and Significance of Report; Contents; formulation;
Guidelines by Planning Commission for Project report; Network Analysis; Errors of Project
Report; Project Appraisal. Identification of Business Opportunities - Market Feasibility
Study; Technical Feasibility Study; Financial Feasibility Study & Social Feasibility Study.

7 Hours

TEXT BOOKS:

1. Principles of Management - P. C. Tripathi, P. N. Reddy; Tata McGraw Hill, 4th Edition,

2010.
2. Dynamics of Entrepreneurial Development & Management - Vasant Desai Himalaya
Publishing House.
3. Entrepreneurship Development - Small Business Enterprises - Poornima M Charantimath
- Pearson Education 2006.

Special Thanks To: Students (5 B sec): Yallappa Pujar, Vinay S M, Manjunath I T I

BY:
RAGHUDATHESH G P, LATA S H
Asst Professor
ECE Dept, GMIT
Davangere 577004
Cell: +917411459249
Mail: datheshraghubooks@gmail.com, lathah@gmit.ac.in
Website: raghudathesh.weebly.com
Quotes:
A best friend is like a four leaf clover, hard to find, lucky to have
Life isn't measured by the number of breaths you take, but by the number
of moments that take your breath away.
Life doesn't have any hands, but it can sure give you a slap sometimes.
We all have baggage, find someone who loves you enough to help you
unpack.
You come into the world with nothing, and the purpose of your life is to
make something out of nothing.
 Unit-8: Preparation of Project
Project:
Definition: Project is a "scientifically evolved work plan intended to achieve a
specific objective within a specified period of time".
It is a scheme, design, a proposal of something intended or devised to be achieved
Each project differs in size, nature, objectives & complexity but they have the
following 3 basic attributes of project
A course of action
Specific objectives
Definite time duration
The basic necessity of an Entrepreneur is to decide upon a project, success of any
enterprise depends on the selection of right project
It is also referred to as foundation for any venture
Innovation & vision form an integral aspect of a project

Classification of Project :
1) a) Quantifiable Projects:
projects for which right quantitative assessment of benefit can be made i.e. which
can be measured are termed as quantifiable projects
Ex.: Projects related to power generation, industrial development etc.
1) b) Non-Quantifiable Projects:
Projects for which quantitative assessment cannot be made and which is not
measurable are termed as non-quantifiable projects
Ex.: projects involving health, education etc.
2) Sectoral Projects: projects are classified based on different sectors or area such as
Automobile sector, Agriculture sector, Health sector, Power sector, Transportation sector,
Manufacturing sector, Food-processing sector etc.
3) Techno-economic Projects: this classification has 3 groups
1) Factor Intensity-oriented classification: - classified as capital intensive or labour
intensive. If large investment is made then such projects are called capital intensive, if
the projects involve large number of human resources then such projects are called
labour intensive.
 2) Cause-oriented classification: - classified as demand based or raw material based. If
there is demand for certain goods/services then it can be called as demand based, the
availability of the raw materials & other resources makes it material based.
3) Magnitude oriented classification: - magnitude of investment (large scale/medium
scale/small scale) is depending upon investment in project.

Project Identification:
Project identification is concerned with collection of economic data, compiling &
analysing it to identify the possibility of investment to produce the goods or service
for making profit
Project identification May come from one or the other of the following ways:
a. Observation: observation is very important source of project idea. Observation
of existing project/processes may lead to the development of a new idea.
b. Trade & professional magazines: trade & professional literatures helps in
getting knowledge about new trends & latest technology which helps in getting
new ideas.
c. Bulletins of research institutions: R&D bulletins of some institutions also
provide some new ideas which are published in the bulletins
d. Government sources: departmental publications of various government
departments also provide useful information which helps in identifying new
ideas.
The project ideas can be discovered from various sources such as:
1. Knowledge of potential customer need
2. Watching emerging trends in demands for certain products
3. Knowledge about the government policy, concessions & incentive, list of items
reserved for manufacture
4. Scope for producing substitute product
5. Visiting trade fairs, exhibitions of new products etc
6. Observation of market & similar products
7. Competitors product
8. Ideas given by friends, relatives based on the intuition & observation
Project Selection:
The selection of project can be done by taking into account the following points
1. Technology: the technology required to develop the project should be available
within, as the project can be started because it may be difficult & costly to get the
technology from foreign collaboration.
2. Equipment: the availability of equipment also should be taken care. Entrepreneur
should select the best equipment available for the project.
3. Investment size: the investment required for a particular project must be made
accurately as wrong estimation may lead to shortage of funds.
4. Location: suitable location for a particular project is important. The entrepreneur
should locate the project where raw materials & resources are available. He may
also start a project in a notified area given by government to avail certain services
such as concessions & subsidies.
5. Marketing: the product should be marketable; the correct estimation of demand
& market share has to be made.

Project Report-need & significance:

A project report serves as a road-map to reach the destination which is determined by
the Entrepreneur
It generally describes the direction the business is going to take, what its goals &
objectives are, where it wants to be, how it is going to get there & when it is going to
get there
It also enables the entrepreneur to know whether he is proceeding in the right
direction, it helps him not only in planning but also in implementation
A good & attractive project report is needed to attract investors such as banks,
financial institutes, venture capitalist etc
Without a project report obtaining various licenses & clearances is virtually
impossible
A well prepared project report can serve as a model & may inspire many more
projects & reports.
Contents of Project Report:
General Information: The report should contain general information regarding the
company, product profile & product details & specification
Promoter: The details of promoter, name, educational qualifications, work
experience, project related experience etc are to be provided.
Location: Details like exact location of project lease or own, location advantages etc
are to be indicated
Land & Building: details of area of land, built up area, type of construction, cost of
construction, detailed plan & estimate are included
Plant & machinery: details of machinery required, their capacities, suppliers, cost,
various alternatives
Capital requirement & cost: information about all items of costs should be carefully
collected & presented
Operational requirement & cost: Information about operational cost should be
presented. They include cost of raw-materials, fuel, power, labour, repair &
Maintenance
Production process: Description of production process, process charts alternate
technologies etc.
Raw material: List of raw materials required its quantity & quality, sources of
supply, cost, tie-up arrangements, alternate raw material or suppliers etc.
Man power: Details of manpower required, skilled, semi-skilled, sources of
manpower supply.
Products: Products produced by-products, product mix, product quality & product
standard etc.
Market: Target users, distribution channels, selling price, trade practices, sales
promotion & estimated sales.
Economic Analysis: Profits, return on investment, market share, exporting etc are
included.
Working capital: requirement of working capital, source of working capital, nature
& extent of credit facilities available.
Requirement of funds: Project cost in terms of cost of land, buildings, machinery,
preliminary expenses & working capital are included.
Project Formulation:
Project formulation is the systematic development of project ideas so as to help arrive
at an investment decision.
It involves a step-by-step Investigation & development of a given project idea.
It involves the joint efforts of a team of experts where each member of team is fully
familiar with the broad strategy, objectives & other aspects of the project.
A well formulated project helps in obtaining financial assistance from various
institutes.
It helps in acquiring, necessary licenses & clearances from the government.
An Entrepreneur can show his professionalism & commitment by producing well
formulated project.

The Process of Project Formulation Consists of Following Aspects:

1) General information: The general information included in report are:
Bio-data of promoter: name & address, qualifications, general experience &
experience in proposed area of project, partners if any.
Industry profile: a reference of analysis of industry to which project belongs,
past performance, present Status, its problems, its organizations etc.
Constitution organization: the structure of the enterprise, in case of partnership
its registration details.
2) Project description: the following aspects is given in project report
Site: location of the enterprise, owned or leasehold land, industrial area, no
objection certificate from Municipal or other authorities.
Physical Infrastructure: availability of raw-materials, source of supply, imported
or indigenous.
Utilities: availability of utilities like water, gas, electricity, petrol etc has to be
studied.
Pollution control: the nature & scope of dumps, sewage systems, and emissions
if any are to be mentioned.
Communication system: details about availability of facilities like telephone,
telefax are to be mentioned.
Transport facilities: requirement of transport, mode & need of transport are
included
 Machinery & Equipment: list of machinery & equipments required indicating
specifications & features, sources of supply, cost of machinery & equipment,
Capacity of the plant: the installed & licensed capacity of the plant with its shift
details need to be mentioned.
Technology selected & R&D activity: the technology selected, source of
technology, the research activity proposed in the future can be mentioned.
3) Market potential: details like projected market potential, demand & supply situation,
projected price, marketing strategy, after sales service, mode of distribution.
4) Capital costs & sources of finance: detailed estimates of various capital items like land &
buildings, cost of installation, source of finance like owners stake, details of loan if any, name
of bank/financial institutions
5) Assessment of working capital requirement: the requirement of working capital with
sources of supply should be clearly stated
6) Other financial aspects: cost of production, projected profit, expected sales, revenue,
projected profit & loss.
7) Economic & social variables: as a part of social responsibility ,any damage to the society
& cost to control such damages, requirement of pollution control; treatment & cost involved
for the same, other details like employment generation, local resource development of local
area, import & export details.
8) Project implementation: details of schedule of implementation of the various tasks of the
project are to be included.

Guideline by planning commission for Project Report:

General information
Preliminary analysis of alternatives: details like gap between demand & supply of
proposed products, availability of capacity, list of all existing plant in industry, their
capacity, level of Production, list of present projects, list of proposed projects,
requirement of foreign exchange, profit return on investment, alternative cost
calculation etc...
Project description
Market plan
Capital requirement & costs
Operating requirements & costs
 Financial analysis
Economic analysis

Network Analysis:
Network is a set of symbols connected with each other in a sequential relationship
with each other making completion of a project/event.
A business plan or any project contains various activities
Any delay in any activity will affect other activities, project is delayed, costs will go
up leading to reduced profit.
A number of g techniques have been developed for project scheduling. They are
1. Program Evaluation & Review Techniques (PERT)
2. Critical Path Method (CPM)
3. Line of Balance (LOB)
4. Graphical Evaluation & Review Techniques (GERT)
5. Workshop Analysis & Schedule Program (WASP)
PERT & CPM are most widely used network analysis

Importance of Network Analysis:

The network analysis helps in identifying the hidden stages involved in project
estimates
By identifying them the management can improve on the on-going project estimates
& learn for future use
The following points tells about importance of network analysis:
i. The whole project has to be considered with reference to the sequence of
activities & events. i.e., activities that are to follow one after another leading
to an event
ii. The events should be considered as different branches of operations
iii. The different segments of the project are treated as separate which are finally
integrated to the overall network
iv. The time estimates may be done based on either previous experience of
similar types of operations or may be based on probabilities for the ones
where previous experience does not exist
 v. Cost estimates would depend on the project time estimates the charge prices
of different factors of production
vi. The physical progress of the project, nature of events, jobs formed at
different areas of project work would call for corrective action at appropriate
time.

Program Evaluation & Review Technique (PERT):

It was first developed as management aid for completing Polaris ballistic missile
project in USA during 1958
PERT schedules the sequence of activities to be completed in order to accomplish the
project within short period of time
It helps to reduce both cost & time of the project
Steps involved in PERT:
i. The various activities involved in the project are drawn up in a sequential
relationships to show which activity follows what
ii. The time required for completing each activity of the project is estimated &
noted on network
iii. The critical activity of the project is determined.
iv. The variability of the project duration & probability of the project completion
in a given time period are calculated
Advantages of PERT:
1. It determines expected time required for completing each activity
2. It helps completion of project within an expected time period
3. It helps the management in handling uncertainties involved in the project there by
reducing the element of risk
4. It enables detailed d raping of activities
5. It stresses for correct action at a given time period thereby helping the project to
be completed on time
Limitations of PERT:
1. Difficult to provide realistic/correct time estimates for new activities in the
absence of past data
2. There is no provision in this techniques about requirement of resources at various
activities
 3. For the effective control of a project using PERT, it calls for frequent updates &
revision of calculations which is costly.
Critical Path method (CPM):
1. It was first developed by Dupont of USA in 1956 for doing periodic overhauling
& maintenance of a chemical plant.
2. Planning refers to determination of activities to be accomplished, scheduling
refers to the introduction of time schedules for each activity of the project
3. The duration of different activities in a CPM are deterministic, there is precise
known time for each activity in a project.
Advantages of CPM:
1. It helps in ascertaining time schedule of activities having sequential relationship
2. It makes control easy for the management
3. It defines the most critical elements in the project. Thus the management is kept
alert & prepared to focus their attention on the critical activities
4. Makes room for detailed & better planning.
Limitations of CPM:
1. CPM operates on the assumption that there is a precise known time that each
activity in the project will take. But this may not be true in real practice
2. CPM estimates are not based on any statistical analysis.
3. CPM cannot be used as a controlling device for the simple reason change
introduced will change the entire structure of network. It is not a dynamic
controlling device.
Difference Between PERT and CPM:
Errors of Project Report:
Entrepreneurs often make errors in the process of formulating Project Report &
business plans. Some of the common errors are:
Product Select: The basic selection of product might itself be wrong. This error
occurs when a product is selected without giving attention to its demand current &
future, availability resource, marketability, producibility, Competition etc. even if
product selection is the right, the information provided may not be well
documented.
Capacity utilization estimates: the entrepreneurs many times may make over
optimistic estimates of capacity utilization. Their estimates are based on
completely false estimates & are made in complete disregard of present
performance of the enterprise, their existing market conditions, competition,
technical elements etc.
Market stuff' a demand may arise if effective market study is not made. Hence
errors in market study with respect to demand & supplies should be avoided.
Technology selection: selecting an old technology which is going to be obsolete
&uneconomical or selecting the latest technology where costs & maintenance are
not supportable are fundamental errors.
Location selection: errors made with respect to man power, machines can
somehow be overcome but error selecting a location, is permanent problem & has
far-reaching implications. Errors in location selection may be due the following
reasons.
Government offering subsidies & incentives to open a unit at a particular
location with other benefits
Emotional selection of home towns & ancestral areas with no other
contributing factors.
Selection of ownership form: most projects fail because of partnership problems.
Wrong selection of partners may lead to the breakup of a company.
Project Appraisal/Assessment of Project:
Project appraisal basically means the assessment of a project. It is the analysis of
costs & benefits of a proposed project
Project appraisals can be carried out for both proposed as well as executed projects
Project appraisals are usually done in the following situations
a. When bank as to compare different proposed projects to produce the same
product & select the best proposal.
b. When a financial institute has scarce funds & has to select a proposed several,
even if they are producing different products
c. When an entrepreneur is looking at various expansion plans for an already
existing unit, He has to appraise all the plans & select the one which suits him
the best.
Even if there are no other project proposals to compare, finance institutes routinely
do project appraisals to assess the creditworthiness of projects.

Methods of Project Appraisal:

Any projects are appraised under the following contexts:
Economic Analysis: Economic analysis includes requirement for raw materials, level
of capacity utilization expected sales, expenses & expected profits. The amount of
sales has to be calculated to achieve target profit; demand for the products has to be
carefully identified. The government policies in this regard should be considered.
Financial Analysis: financial analysis includes assessment of financial requirements
like fixed capital land & building, plants & machinery are examples of fixed capital,
while economic connection, water sources, cost of plant & machinery, pre-production
cost are to be considered.
Technical feasibility: while making technical analysis, the equipment required
propose the product for particular technology, it should also be checked whether there
is availability of technology within the enterprise or it has to be obtained from
outside either by purchasing or by importing.
Managerial competence: manager plays a vital role in making the enterprise a
greater success. In the absence of a manager a technically & financially viable
projects may fail. Also a good ability may bring a bad project to an efficient one.
 Market Analysis: before the actual start of production, there is need to study the
market with respect to demand, target customers, when & where the products are to
be sold.

Identification of Business Opportunity:

Business opportunities can be obtained from various magazines, trade journals,
financial institutions, government, commercial organisations, friends relatives,
competitors etc.
Choosing of best business opportunity from the information collected requires
ingenuity, skill & foresight of entrepreneur.
An entrepreneur has to select the most rewarding opportunity from the available ones
He has to evaluate following areas & understand the gap between demand & supply
1. Study of government rules & regulations regarding the different business
opportunities
2. Extensive & in-depth study of promising investment opportunity.
3. SWOT analysis of the business opportunities
4. Market feasibility study
5. Technical feasibility study
6. Financial feasibility study
7. Social feasibility study
An opportunity can defined as an attractive & excellent project idea Which an
Entrepreneur searches for & accepts such idea as a basis for his investment decision
A good business opportunity must be capable of being converted into feasible project
Two major characteristics of business opportunity are: good & wide -Market scope &
an attractive, acceptable & reliable return on investment

Sources of Business Idea:

Unfulfilled demand: an unfulfilled demand will open doors to new products
Own idea: once own creative idea can result in a business opportunity
Social & Economic trends: social & economic trends necessitate demand form new
products
 Magazines/journals/research/publications:magazines/journals/research
publications form a major role of ideas
Government: government also identifies & proposes ideas & supports, for business
idea
Emerging new technology: commercial exploitation of indigence & imported
technologies
Charges in consumer needs: the needs of consumers charge giving rise to
requirement of new business opportunities
Trade fairs/exhibition: Trade fairs & technical exhibitions also offer wide scope for
new business opportunities
Banks & government agencies: commercial banks & government agencies
encourage entrepreneurs by providing business opportunities, ideas, subsides, loan
etc.,

Market Feasibility Study:

Market feasibility study will assess whether the products has good market. This needs
to study the following:
1. Nature of the market: the nature of market in terms of competition is to be studied.
2. Cost of production: the amount required for production of required products is to
be analysed. The cost of production decides the selling price.
3. Selling price & profit: selling price plays a vital role in profit. One should be
careful in fixing the price.
4. Demand: present demand & demand forecast are to be studied.
5. Market share: estimated market share is made by making comparison with similar
kind of products.
6. Target market: details regarding the target customers are to be studied.

Technical Feasibility Study:

1. Location of the project: details about location are to be analysed, the project may be
located in rural, urban or Semi- urban area
2. Construction of factory, building & its size: the construction details, nature/type of
building, size for the project need to be mentioned.
 3. Availability of raw materials: availability of materials, sources of supply, alternate
sources, its quality, specification etc are to be studied.
4. Selection of machinery: the selection of machinery required to produce intended
product is carried out. The capacity, cost, sources of supply, technology evaluation
etc.
5. Utilities: availability of utilities like water, gas, electricity, petrol etc has to be
studied.
6. Production capacity: the number of products produced by a company within a
specific time is studied.
7. Staff requirement: study & analysis of requirement of workers, technical & non-
technical staff, officers etc.
8. Technical viability: the technical opportunities available are studied

Financial Feasibility Study:

1. Total capital cast of project: the total cost of the project is studied which includes
total capital, working capital & interest factor.
2. Sources of capital: the main source of capital is studied. If capital is borrowed,
interest burden is studied.
3. Subsidiary sources for additional finance: subsidiary sources of capital if any have
to be identified & studied. Working capital requirement for at least 3 months running
of enterprise is estimated
4. Break even analysis(BEA): BEA is to be carried out to see at which level of
production/sales will make the organization to be in a profit or loss situation
5. Return on investment(ROI):ROI has to be calculated to see the amount of return on
Investment for investor/share holders.
6. Estimation of cash and fund flow: the estimation of cash and fund flow in the
business.
7. Proposed balance sheet: proposed balance sheet showing liabilities & assets,
depreciation, interest burdens profits expected etc.
8. Cost of labour & technology: the salaries for employees are to be studied &
estimated. If the technology is unavailable then it has to be purchased from any R&D
institution or from foreign collaboration.
 9. Financing for future development of business: finance requirement for future
development of business need to be studied, working capital requirement for at least
3 months running of enterprise is estimated.

Social Feasibility Study:

1. Location: the location should be in such a place that there should be no objection
from neighbours.
2. Social problem: the enterprise should not create any nuisance to the public.
3. Pollution: there should not be any sort of noise or other pollution to the society.
Suitable measures are to be taken to control pollution.

Questions:
1. Define Project what are the critical for selecting a particular project, an Entrepreneur
should consider?
2. Explain the phases of project identification with its sources.
3. What are the methods or steps followed in Project Appraisal? Explain
4. Define Project report & discuss its need & significance
5. What are the common errors in project report formulation? Explain.
6. What is Market feasibility? Explain.
7. Briefly explain the importance of Project Identification.
8. Explain importance of network analysis. What are the various techniques used for network
analysis?
9. Explain both PERT & CPM with its advantages & disadvantages.
10. Briefly outline the contents of a Project report
11. What is social feasibility? Explain.
12. What is technical feasibility? Explain.
13. What is financial feasibility? Explain.
14. What is Project formulation? Explain the process of project formulation.
15. Discuss about the classification of Projects.
16. What are the Guidelines by planning commission for Project Report?
17. Write about identification of business ideas.