3. ACKNOWLEDGEMENT
We would like to express our gratitude to our principal Fr.Prasanth Palackapillil who
gave us the golden opportunity to do this assignment on the topic ‘Entrepreneurship and
Project Management’.
Our special gratitude to our director Fr. Limson for being so supportive.
We would like to extend our thanks to Head of department Mrs. Kalpita Chakrabortty
and rest of the staff for their blessings and constant support and guidance in completing
this assignment.
Special thanks to our course faculty Dr. Aravind T.S, without whom this project would
not have been possible.
This assignment helped us in doing research which enriched our knowledge and
accustomed us to new terms and topics.
Lastly I would like to thank each and every team member who helped in finalising this
textbook within the limited time period.
Date: BBA 2017-2020
4. 1
Table of Contents
MODULE 1................................................................................................................................3
1.1 Entrepreneur.....................................................................................................................3
1.2 Characteristics and skills..................................................................................................3
1.3 Generation and Screening of a project idea ...................................................................10
1.4 Entrepreneurial skills .....................................................................................................20
1.5 Govt. support to entrepreneurs.......................................................................................21
1.6 Typical Barriers to Entry................................................................................................27
1.7 Typical Barriers to Exit..................................................................................................28
1.8 Entrepreneurial Finance: ................................................................................................29
1.9 Family business..............................................................................................................33
1.10 PROBLEMS FACED BY SMALL SCALE INDUSTRIES .......................................34
1.11(a) CASE:......................................................................................................................42
MODULE 2..............................................................................................................................44
2.1 Project ............................................................................................................................44
2.2 DEFINITION .................................................................................................................45
2.3 Key Characteristics ........................................................................................................45
2.4 DEMAND ANALYSIS AND TECHNICAL ANALYSIS ...........................................50
2.5 Environmental impact Analysis .....................................................................................61
2.6 Managerial Appraisal.....................................................................................................66
2.7(a) CASE:............................................................................................................................73
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MODULE 1
1.1 Entrepreneur
A person who organizes and manages any enterprise, especially a business, usually with
considerable initiative and risk.
1.2 Characteristics and skills
1.2.1 Motivation
Hard-working business owners are incredibly motivated to succeed. Adopting this mind-
set—and being able to demonstrate your motivation to an employer—is crucial, says Karen
Litzinger, a career coach in Pittsburgh. “You need to bring enthusiasm to everything you do
at your job,” Litzinger says.
Fortunately, showing you’re highly motivated is simple: “You have to show up to work every
day with a positive attitude,” Plutz says. “Employers want to see you’re passionate.”
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1.2.2 Creativity
No matter what industry you’re in, employers want workers with out-of-the-box ideas,
Litzinger says. “They want employees to be able to not only carry out assignments, but also
come up with better ways of doing things,” she says.
That’s why it’s important to be creative—to always be thinking of new ways you can
improve your company’s workflow, productivity, and bottom line.
1.2.3 Persuasiveness
Persuasiveness can make you a better negotiator, which gives you an edge when going after a
plum assignment, raise, or promotion, says career coach Phyllis Mufson.
“There are times when you are going to need to convince a client, a co-worker, or your boss
to take certain actions, so you need to be persuasive” when presenting your ideas, Litzinger
says.
1.2.4 Vision
Successful entrepreneurs always keep one eye on the big picture, and this ability can make
you a better employee. “Vision is about strategic planning,” Litzinger says.
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Can you see what direction the industry is going? Can you identify challenges for your
company? Can you tackle your day-to-day job responsibilities, while staying focused on
long-term goals and initiatives?
1.2.5 Versatility
You have to be able to adapt to changes in the workforce. “You may be hired for a specific
set of skills, but it’s important to be able to shift as needed,” Litzinger says.
You want to be someone that your boss can go to in a pinch, so be prepared to tackle work
that’s outside your job description. It’s also important to be an early adopter of new
technology and keep your skills current, Litzinger says.
1.2.6 Risk tolerance
“Every employer wants to grow their business, which often involves risk and change,” says
Litzinger. Translation: Don’t be afraid to take risks when pursuing new clients, for example,
or testing a new product. (One caveat: Make sure you have your boss’ buy-in before taking a
risk.)
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1.2.7 Flexibility
Like an entrepreneur, you have to be able to adapt to change and solve problems as they
arise, Mufson says. A good team player can shift their priorities to help out whenever the
team needs assistance. Thus, flexibility means being receptive to other people’s needs,
opinions, and ideas and being open-minded to feedback from your manager.
1.2.8 Decisiveness
Do you exercise sound judgment under pressure? When you’re an entrepreneur, you don’t
have room to procrastinate—and the same is true for employees. “You have to be able to take
action when needed,” Litzinger explains. You must know how to prioritize tasks and make
decisions quickly. (It helps to be organized.)
1.2.9 Collaboration
Savvy entrepreneurs are not only brilliant leaders, but also great collaborators, Plutz says, so
you have to be an effective team player. Unsurprising, 78% of hiring managers seek job
candidates who demonstrate strong teamwork skills, according to the National Association of
Colleges and Employers Job Outlook 2017 survey.
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Ultimately, using entrepreneurial skills at work entails adjusting to other people’s work
styles, avoiding office politics, celebrating your peers’ successes, meeting your deadlines,
and putting your company’s goals first.
1.2.10 Ambition
It is easy to give up when the going gets tough, but the most successful entrepreneurs persist
because of their ambitious nature. They want to succeed, and they thrive on reaching small
milestones that are stepping stones to their major goal. When you are highly ambitious, you
may have an internal drive to work hard, and you may be committed to doing what it takes to
make your business a success. Generally, you will not look for shortcuts and are willing put
in the time necessary to get the job done right.
1.2.11 Willingness to Learn
Some people think that learning stops when you graduate college or earn a special
certification, but this is not the case. Education is a life-long process. You must stay updated
with changes in technology, the evolution of your industry, sales processes and more. Always
seek new knowledge. More than that, look for the most successful people in your industry
and do not be afraid to ask for their opinions or advice.
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1.2.12 Ability to Listen
You simply cannot manage a great team or run provide a great customer service if you are
not an effective communicator. Communication is a two-way street. In order to communicate
outwardly in an effective manner, you must pay attention to others’ motivations, hot buttons,
interests and more. You also must be aware of non-verbal cues, such as body language.
Avoid coming off as being self-promotional or vain, and strive to show that you are helpful
and interested in others. This can foster collaboration, get others excited about your goals and
more rather than turn them off because you seem overly interested in your own self-interests.
1.2.13 Creativity
If you always do the same thing, you very likely will not enjoy new and better results. You
must try new things to find what works best. You also need to enrich your live with new
experiences regularly. This may be something as simple as talking to new people or taking a
personal interest class. Each experience that you have can lead to new opportunities that you
previously did not have available to you.
1.2.14 Assertiveness and Confidence
While listening is important for effective communication, you also must know when you
need to take control of the conversation and assert your opinions and beliefs. You should
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listen to others who are making reasonable claims and requests, but you also need to know
when to say no. Be consistent yet open-minded to earn respect and trust from those around
you. You need to know what you stand for, and you need to stand up for those beliefs.
1.2.15 Perseverance
Many of the most successful business owners have suffered devastating defeats and failures.
Rather than look at these events as an end to a situation, they have looked at these events as
important learning moments. They maintained their optimism and perseverance, but they also
made calculated changes to future efforts. Remember that you only fail when you stop trying.
Persistence is the key to success.
1.2.16 Courage and Risk Taking
In order to harness the power of creativity, you must have the courage to act on your great
ideas and plans. While you need to research your ideas thoroughly, you must also have the
courage to take an unknown step and try things that are unfamiliar to you. In the words of
John Burroughs, “Leap, and the net will appear
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1.3 Generation and Screening of a project idea
Generation and Screening of a project idea Generation and Screening of a project idea begins
when someone with specialized knowledge or expertise or some other competence feels that
he can offer a product or service:
Which can cater to a presently unmet need and demand
To serve a market where demand exceeds supply
Which can effectively compete with similar products or services due to its better
quality/price etc.
An organization has to identify investment opportunities which are feasible and promising
before taking a full-fledged project analysis to know which projects merit further examination
and appraisal.
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1.3.1 Tasks involved in Generation and Screening of a project idea:
Generation and Screening of a project idea involves the following tasks:
1.3.1.1 Generation of ideas:
A panel is formed for the purpose of identifying investment opportunities. It involves the
following tasks which must be carried out in order to come up with a creative idea –
SWOT analysis – Identifying opportunities that can be profitably exploited
Determination of objectives – Setting up operational objectives like cost reduction,
productivity improvement, increase in capacity utilization, improvement in contribution
margin
Creating Good environment – A good organizational atmosphere motivates employees to
be more creative and encourages techniques like brainstorming, group discussion etc.
which results in development of creative and innovative ideas.
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1.3.1.2 Monitoring the Environment:
An Organization should systematically monitor the environment and assess its competitive
abilities in order to profitably exploit opportunities present in the environment.
The key sectors of the environment that are to be studied are:
Economic Sector –
o State of economy
o Overall rate of Growth
o Growth of primary, secondary and tertiary sectors
o Inflation rate
o Linkage with world economy
o BOP situation
o Trade Surplus/Deficit
Government Sector –
o Industrial policy
o Government programmes and projects
o Tax framework
o Subsidies, incentives, concessions
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o Import and export policies
o Financing norms
Technological Sector –
o State of technology
o Emergence of new technology
o Receptiveness of the industry
o Access to technical know how
Socio-demographic sector –
o Population trends
o Income distribution
o Educational profile
o Employment of women
o Attitude towards consumption and investment
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Competition Sector –
o No. of firms and their market share
o Degree of homogeneity and production differentiation
o Entry barriers
o Marketing policies and prices
o Comparison with substitutes in terms of quality/price/appeal etc.
Supplier Sector – Availability and cost of raw material, energy and money
1.3.1.3 Corporate Appraisal:
It involves identification of corporate strengths and weaknesses. The important aspects that
are to be considered are:-
Market and Distribution–
o Market Image
o Market share
o Marketing and Distribution cost
o Product line
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o Distribution Network
o Customer loyalty
Production and Operations–
o Condition and capacity of plant and machinery
o Availability of raw materials and power
o Degree of vertical integration
o Location advantage
o Cost structure – Fixed and Variable costs
Research and Development–
o Research capabilities of a firm
o Track record of new product developments
o Laboratories and testing facilities
o Coordination between research and other departments of the organization
Corporate Resources and Personnel–
o Corporate Image
o Clout with government and regulatory agencies
o Dynamism of top management
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o Competence and commitment of employees
o State of industrial relations
Finance and Accounting–
o Financial leverage and borrowing capacity
o Cost of capital
o Tax situation
o Relations with shareholders and creditors
o Accounting and control system
o Cash flows and liquidity
1.3.1.4 Tools for identifying investment opportunities:
Porter 5 forces Model- It helps in analysing profit potential of an industry depending upon
strength of:
o Threat of new entrants
o Rivalry amongst existing companies
o Pressure from substitute products
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o Bargaining power of buyer
o Bargaining power of seller
Life cycle Approach- There are four stages a product goes through during his life cycle
each stage represents different investment and net profit value:
o Pioneering Stage – In this stage the technology and product is new, there is high
competition and very few entrants survive this stage.
o Rapid Growth Stage – This stage witnesses a significant expansion in sales and profit.
o Maturity Stage – It marks developed industries with mature product and steady
growth rate.
o Decline Stage – Due to introduction of new products and changes in customer
preference the industry incurs a decline in market share and profits.
o Experience Curve → Experience curve analyses how cost per unit changes with
respect to accumulated volume of production. Investment must be such that reduces
costs.
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1.3.1.5 Looking for Project Ideas:
Various sources to look for good project ideas include:
Trade fairs and exhibitions
Studying Government plans and guidelines
Suggestion of financial institutions and development agencies
Investigating local materials and resources
Analysing performance of existing industries
Analysing social and economic trends
Analysing new technological developments
Studying the consumption pattern of people abroad
Stimulating creativity to produce new ideas
Reducing exports and imports
1.3.2 Preliminary Screening:
It refers to elimination of project ideas which are not promising. The factors to be considered
while screening for ideas are:-
Compatibility with the promoter – The idea must be consistent with the interest,
personality and resources of entrepreneur.
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Consistency with Government priorities – The idea must be feasible with national goals
and government regulations.
Availability of inputs – Availability of power, raw material, capital requirements,
technology.
Adequacy of Market – Growth in market, prospect of adequate sale, reasonable Return on
Investment.
Reasonableness of cost – The project must be able to make reasonable profits with respect
to the costs involved.
Acceptability of risk level – The desirability of the project also depends upon risks
involved in executing it.
In order to access risk the following factors must be considered:-
Project`s vulnerability to business cycles
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Change technology
Competition from substitutes
Government`s control over price and distribution
Competition from imports
1.4 Entrepreneurial skills
An individual must possess the following traits and qualities in order to be a successful
entrepreneur –
He must be Willing to make sacrifices
He must be a good Leader
He must be able to make quick and rational decisions
He must have confidence in the project
He must able to exploit market opportunities
He must have strong ego in order to survive ups and downs of a business
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1.5 Govt. support to entrepreneurs
1.5.1 Multiplier Grants Scheme:
Launched by Department of Electronics and Information Technology (DeitY), MGS has
been launched to ‘encourage collaborative R&D between industry and academics/ R&D
institutions for development of products and packages.’
This start up scheme is valid till March 31st, 2020, and have a corpus of Rs 36 crore for Start-
ups, incubator/academia/accelerators engaged in electronics and information technology
domain. Applicable Industries: Artificial Intelligence, Technology, Hardware, Internet of
Things, IT Services, Enterprise Software, Analytics. For more information, please visit here.
1.5.2 Modified Special Incentive Package Scheme (M-SIPS):
Launched by Department of Electronics and Information Technology (DeitY) and supported
by Center for Development of Advanced Computing or CDAC, M-SIPS aims to ‘promote
large-scale manufacturing in the Electronic System Design and Manufacturing (ESDM)
sector.’
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Besides infusing the start-ups with funds for expansion, M-SIPS will also provide subsidy up
to 25% in establishing offices, research centres in SEZs, all over the nation.
Applicable Industries: IT Hardware, Medical-tech, Solar Power, Automobiles, Healthcare,
Semiconductors, Processors/Electronica, LEDs, LCDs, Avionics, Industrial Electronics,
Nano-Electronics, Biotech, Strategic Electronics, Telecom and more. For more information,
please visit here.
1.5.3 The Venture Capital Assistance Scheme:
Launched in 2012 by Small Farmers’ Agri-Business Consortium (SFAC), this special scheme
aims to assist agriculture based entrepreneurs to kick-start their agri-business.
SFAC has tied up with 42 banks, which help them to disperse interest-free loans to farmers
(individuals/groups), partnership firms, self-help groups, agriculture pass out/graduates, agri-
preneurs, producer groups, and companies.
Applicable Industry: Agriculture: For more information, please visit us here.
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1.5.4 Credit Guarantee:
Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) has launched this
unique Government scheme to help assist retailers, educational institutes, self-help groups,
farmers and SMEs.
Basically, the Credit Guarantee scheme has been launched to smoothen credit delivery
system, as guarantee cover up to 85% is provided to the SMEs for loans up to Rs 5 lakh.
Applicable Industry: SMEs: For more information, please visit here.
1.5.5 Raw Material Assistance:
National Small Industries Corporation or NSIC has launched Raw Material Assistance
scheme, which aims to assist manufacturers and MSMEs with procuring raw materials, both
indigenous & imported.
As per the Government Schemes helps the manufacturer’s to focus on the quality of their
products, as they can avail low-interest loans and financial help to get raw materials.
27. 24
Applicable Industries: Manufacturing, MSMEs: For more information, please visit here.
1.5.6 Infrastructure Development Scheme:
National Small Industries Corporation (NSIC) has launched this unique scheme to help start-
ups establish their own offices and infrastructure.
However, only those companies which fall under the official definition of start-ups, as
highlighted by the Ministry of Micro, Small and Medium Enterprises can avail this grant.
Start-ups which are not registered with Software Technology Parks of India Scheme can now
get office space ranging from 467 sq. to 8,657 sq.
There is no lock-in period, and it is applicable to all industries. For more information, please
visit here.
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1.5.7 MSME Market Development Assistance:
Office of the Development Commissioner (MSME) has launched this scheme to help SMEs
and small retailers get more attention at international trade fairs and exhibitions.
Companies registered with Directorate of Industries/District Industries Centre can get up to
100% reimbursement on air-fares and cost of placing their stalls in such fairs/exhibitions, all
over the world.
This scheme is not specific to any industry and applicable to SMEs, retailers, and start-ups.
For more information, please visit here.
1.5.8 Credit Linked Capital Subsidy for Technology Upgradation:
Office of the Development Commissioner (MSME) has launched this Government scheme to
help manufacturers, SMEs, and agri-startups to upgrade their existing machines and
technologies.
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In case any SMEs registered with State Directorate of Industries have upgraded their
machines, plants with state of the art technology, then they can apply for this grant, and
receive funds to compensate their expenses.
Applicable Industries: Khadi, Village or Coir industry, Manufacturing, Small Scale Industry,
SMEs: For more information, please visit here.
1.5.9 Atal Incubation Centres (AIC):
Headed by Atal Innovation Mission, AIC aims to promote innovation and entrepreneurship in
India. Approved start-ups can get funding up to Rs 10 crore for a maximum period of 5 years,
to cover capital and operational expenses.
Industries Applicable: AI, AR/VR, Automobiles, Telecom, Healthcare, Aeronautics,
Aviation, Chemicals, Nano-Tech, Pets, Animals, IT, Computers, Design, Non-Renewable
Energy, Social Impact, Food and more. For more information, please visit here.
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1.5.10 Bridge Loan Against MNRE Capital Subsidy:
Launched by Indian Renewable Energy Development Agency (IREDA), Bridge Loan against
MNRE Capital Subsidy aims to promote start-ups engaged in renewable energy ideas such as
biomass power and small hydropower projects. Up to 80% of the project cost will be funded
by IREDA, and the minimum funding allocated shall be Rs 20 lakh.
1.6 Typical Barriers to Entry
Economies of size - The need for a large volume of production and sales to reach the cost
level per unit of production for profitability is a barrier to entry.
Capital intensive - A large capital investment per unit of output in facilities tends to limit
industry entry.
Intellectual property - Patents and other types of proprietary intellectual property are very
effective in limiting industry entry.
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High switching costs - The tendency for buyers of an industry’s products to be reticent
about switching to a new supplier tends to limit entry.
Established brand identity - Industries dominated by branded products are difficult to
enter due to the large amount of time and money required to create a competing branded
product.
Permitting requirements - Industries where permitting and licenses are required to
establish production tend to have limited entry.
Government standards - Industries where rigid industry standards exist tend to have
limited entry.
1.7 Typical Barriers to Exit
Investment in specialist equipment - Investments in specialized equipment that cannot
readily be used in other industries tends to be an impediment to leaving the industry.
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Specialized skills - Highly specialized skills by industry participants that cannot be
utilized in other industries tend to be an impediment to leaving the industry.
High fixed costs - High levels of dedicated fixed costs tend to be an impediment to
leaving an industry.
If we combine entry and exit, we can predict industry rivalry, stability and profitability.
As shown in Figure 1, an industry that is easy to enter but difficult to leave has intense
industry rivalry and low profitability. At the first sign of excess profitability in the
industry, competitors flock to the industry. However, when profitability falls, it is difficult
to leave the industry so profitability remains low.
1.8 Entrepreneurial Finance:
Finance, technically, refers to any transaction of money, or money-related medium of
exchange and monetary measurement. More broadly, finance can be considered the art and
science of money handling and capital management. Its significance lies in the understanding
of how money works in a society, and how it is related to economic and legal systems, given
the society's rules and regulations, and the structure of its financial institutions. The ultimate
goal of finance is to achieve the highest efficiency in the way of using funds regardless of the
nature and direction of the utilization of money. In this sense, and in the business domain,
33. 30
financial management would represent the firm's responsibility to plan, acquire, and manage
capital to efficiently run the business as well as to grow it and further invest in its capital.
Entrepreneurial finance is the third major field of finance along with personal finance and
corporate finance. It is all about applying the fundamental financial principles and basic
theories in the domain of new and small-scale business firms. Furthermore, it is adapting
those principles and theories for planning and developing, starting up, operating, growing and
maturing, valuing, and harvesting entrepreneurial business projects. The nature, needs, and
dynamics of a new venture and the entrepreneurial aspect are what primarily characterize and
identify entrepreneurial finance …
1.8.1 Venture Capital:
It is a private or institutional investment made into early-stage / start-up companies (new
ventures). As defined, ventures involve risk (having uncertain outcome) in the expectation of
a sizeable gain. Venture Capital is money invested in businesses that are small; or exist only
as an initiative, but have huge potential to grow. The people who invest this money are called
venture capitalists (VCs). The venture capital investment is made when a venture capitalist
buys shares of such a company and becomes a financial partner in the business.
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1.8.1.1 Features of Venture Capital investments:
High Risk
Lack of Liquidity
Long term horizon
Equity participation and capital gains
Venture capital investments are made in innovative projects
Suppliers of venture capital participate in the management of the company
1.8.1.2 Methods of Venture capital financing:
Equity
participating debentures
conditional loan
1.8.1.3 The venture capital funding process typically involves four phases in the
company’s development:
Idea generation
Start-up
Ramp up
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Exit
1.8.1.4 Advantages of Venture Capital:
They bring wealth and expertise to the company
Large sum of equity finance can be provided
The business does not stand the obligation to repay the money
In addition to capital, it provides valuable information, resources, technical assistance
to make a business successful
1.8.1.5 Disadvantages of Venture Capital:
As the investors become part owners, the autonomy and control of the founder is lost
It is a lengthy and complex process
It is an uncertain form of financing
Benefit from such financing can be realized in long run only
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1.9 Family business
Running a family business creates both opportunities and challenges. Opportunities stem
from the ability of these businesses to weave their own family values right through the
company’s culture. Time and time again family businesses within the CBI network report that
there is a strong ‘loyalty effect’ from their employees because staff work directly with the
owners and they understand and support their vision and aspirations. For many of these
businesses there is a close personal connection between company owners and customers and
indeed between owners and the wider community in which the firm operates. These close
connections significantly help with building and maintaining good reputations. In addition,
the flatter structures in family-run businesses often allows for faster flow of information and
quicker decisions - all of which leads to greater efficiency.
However, as with many business models there are some unique challenges too when it comes
to the family-run firm.
1.9.1 Challenges:
Succession planning and talent management – ensuring the next generation in the firm is
willing, able and ready to meet the challenges of running the business on a day to day
basis. A management and corporate governance structure that is able to meet the growing
day to day demands of an ever changing business landscape, while also looking to the
long-term development of the business
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Advice and consent – being willing to make changes and bring outside advice into the
firm.
Wealth management and development – for many firms, the wealth of the family is tied
up in the financial health of the business.
Despite these challenges, we must remember that many of the world’s best known brands
have their origins in a family businesses. Indeed common characteristics of the most
successful family-run firms include: flexibility, innovation, connectivity and great culture. To
maintain and support Northern Ireland’s proud heritage of family-owned firms and to ensure
that more of these companies go on become global brands and global leaders; we at the CBI
must continue to push for a business environment that both supports enterprise and is
simultaneously sensitive to the challenges encountered by families in business.
1.10 PROBLEMS FACED BY SMALL SCALE INDUSTRIES
The following are the problems faced by Small Scale Industries:
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1.10.1 Poor capacity utilization:
In many of the Small Scale Industries, the capacity utilization is not even 50% of the installed
capacity. Nearly half of the machinery remains idle. Capital is unnecessarily locked up and
idle machinery also occupies space and needs to be serviced resulting in increased costs.
1.10.2 Incompetent management:
Many Small Scale Industries are run in an incompetent manner by poorly qualified
entrepreneurs without much skill or experience. Very little thought has gone into matters such
as demand, production level and techniques, financial availability, plant location, future
prospects etc. According to one official study, the major reason for SSI sickness is deficiency
in project Management i.e., inexperience of promoters in the basic processes of production,
cash flow etc.
1.10.3 Inadequate Finance:
Many Small Scale Industries face the problem of scarcity of funds. They are not able to
access the domestic capital market to raise resources. They are also not able to tap foreign
markets by issuing ADR’s (American Depository Receipts) GDR’s (Global Depository
Receipts) etc. because of their small capital base. Banks and financial institutions require
39. 36
various procedures and formalities to be completed. Even after a long delay, the funds
allocated are inadequate.
Bank credit to the small scale sector as a percentage of total credit has been declining. It fell
from 16% in 1999 to 12.5% in 2002. Small Scale Industries are not able to get funds
immediately for their needs. They have to depend on private money lenders who charge high
interest. Finance, as a whole, both long and short term, accounts for as large as 43% of the
sector’s sickness.
1.10.4 Raw material shortages:
Raw materials are not available at the required quantity and quality. Since demand for raw
materials is more than the supply, the prices of raw materials are quite high which pushes up
the cost. Scarcity of raw materials results in idle capacity, low production, inability to meet
demand and loss of customers.
1.10.5 Lack of marketing support:
Small Scale Industries lack market knowledge with regard to competitors, consumer
preferences, market trends. Since their production volume is small and cannot meet demand
for large quantities their market is very restricted. Now with the process of liberalization and
globalization they are facing competition from local industries as well as foreign competitors
40. 37
who sell better quality products at lower prices. For e.g. heavily subsidized but better quality
imports from China has made most of the Indian SSI units producing toys, electronic goods,
machine tools, chemicals, locks and paper etc., unviable.
1.10.6 Problem of working capital:
Many Small Scale Industries face the problem of inadequate working capital. Due to lack of
market knowledge their production exceeds demand, and capital gets locked in unsold stock.
They do not have enough funds to meet operational expenses and run the business.
1.10.7 Problems in Export:
They lack knowledge about the export procedures, demand patterns, product preferences,
international currency rates and foreign buyer behaviour. Small Scale Industries are not able
to penetrate foreign markets because of their poor quality and lack of cost competitiveness. In
countries like Taiwan, Japan etc. products produced by Small Scale Industries are exported to
many foreign countries. But in India not much thought and focus has gone into improving the
export competitiveness of Small Scale Industries.
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1.10.8 Lack of technology up-gradation:
Many Small Scale Industries still use primitive, outdated technology leading to poor quality
and low productivity. They do not have adequate funds, skills or resources to engage in
research and development to develop new technologies. Acquiring technology from other
firms is costly. Therefore Small Scale Industries are left with no choice but to continue with
their old techniques.
1.10.9 Multiplicity of labour laws:
One of the merits of Small Scale Industries are that they are labour intensive and can provide
employment to a large number of people. But the multiplicity of labour laws, need to
maintain several records (PF, ESI, and Muster Rolls etc.), fines and penalties for minor
violations etc. place Small Scale Industries at a great disadvantage.
1.10.10 Inability to meet environmental standards:
The government lays down strict environmental standards and Courts have ordered closure of
polluting industries. Small Scale Industries which are already facing shortage of funds to
carry out their business are not able to spend huge sums on erecting chimneys, setting up
effluent treatment plants etc.
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1.10.11 Delayed payments:
Small Scale Industries buy raw materials on cash but due to the intense competition have to
sell their products on credit. Buying on cash and selling on credit places a great strain on
finances. The greater problem is payments are delayed, sometimes even by 6 months to one
year. It is not only the private sector but even government departments are equally guilty.
Delayed payments severely impact the survival of many Small Scale Industries.
1.10.12 Poor industrial relations:
Many Small Scale Industries are not able to match the pay and benefits offered by large
enterprises, because their revenues and profitability are low and also uncertain. This leads to
labour problems. Employees fight for higher wages and benefits which the SSI is not able to
provide. This may lead to strikes, resulting in damage to property in case of violence by
employees, production losses etc.
1.10.13 Strain on government finances:
Marketing of products manufactured by Small Scale Industries is a problem area. The
government has to provide high subsidies to promote sales of products produced by Khadi
and Village Industries. This places a great strain on government finances.
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1.10.14 Concentration of industrial units:
There is high concentration of small scale industrial units in a few states. Of the estimated
3.37 million units as on 2000-01, nearly 60% were located in six states. West Bengal,
Madhya Pradesh and Uttar Pradesh alone account for 20% of Small Scale Industries. Due to
concentration, there is high competition among them to procure raw materials and other
industrial inputs. This leads to high costs and scarcity of raw materials and other inputs
affecting their production and increasing costs.
1.10.15 inadequate dispersal:
One of the objectives of the government in promoting Small Scale Industries was to increase
industrial development and employment opportunities throughout the country. Since nearly
60% of the Small Scale Industries are concentrated in few states, the objective of balanced
regional development and promotion of backward areas has not been achieved. Further
majority of Small Scale Industries are located in urban areas and the aim of industrial
development in rural areas has also been defeated.
1.10.16 widespread sickness:
Sickness among Small Scale Industries is widespread. Sickness is not detected in the initial
stages and large amount of funds are locked in them. Nearly two and a half lakh SSI units are
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sick and as on 2001 and nearly Rs. Five thousand five hundred crores of bank funds are
locked in them. Due to this new entrepreneurs are not able to get loans, workers in the sick
units lose their jobs and industrial and economic development is affected. In Maharashtra
alone nearly 3 lakh units have closed down, 38 lakh workers have lost their jobs and the loss
to the government is Rs.5, 000 crore.
1.10.17 Lack of awareness:
The government has set up many organizations to support and provide assistance to Small
Scale Industries. But, many of the entrepreneurs running Small Scale Industries are not aware
of the various support services.
1.10.18 Government interference:
Small Scale Industries have to maintain a number of records and there are endless
government inspections. A lot of time, money and effort is wasted in complying with various
inspections and records verification. This prevents Small Scale Industries from fully
concentrating on their business activities.
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1.11(a) CASE:
Entrepreneurship Development - Case Study:
Adani Group was founded by Gautam Adani. He was born in 1962 in Ahmedabad, Gujarat in
a Jain family. Gautam Adani moved to Mumbai, Maharashtra at a young age of 18. In the
beginning of his career, he worked at Mahindra Brothers as a diamond sorter. After spending
two years working as a diamond sorter he set up his own diamond brokerage business based
in Mumbai.
In his first year of business at a diamond brokerage, he had scored a profit of 10, 00,000 lakh
rupees which was a big amount in the 80’s. Later, he started commodities trading and began
to purchase PVC for his elder brother’s plastic factory.
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1.11(a) FIGURE
In 1988, he established Adani Enterprises. It traded in power and agriculture commodities.
In 1990, Adani Group partnered with American multinational, Cargill, to export salt from
Gujarat. After a while, the company exited and the partnership broke which left 5,000 acres
of land for Adani group, which is now the largest multiproduct special economic zone of India.
In 1991, government policies changed which encouraged business, that led to a boom in Adani
group and huge profits were made.
The government of Gujarat in 1993 decided to lend Mundra Port (a sea port located in Gujarat)
to private companies. In 1995, this contract was given to Adani group. The port has grown
substantially from 1995 and now it can handle nearly 8 crore tons of cargo per year and that
makes it the largest private sector port in India.
After the port became active, Adani expected that there would be a need of power in future.
Assuming the need, it started importing coal.
This was the initiation to enter into the power and energy sector.
Gautam Adani then founded Adani Power Ltd., which is now India’s largest private thermal
power company with a capacity of 4620 MW.
Adani group is now estimated to have 40 billion USD as total assets with 60,500 employees,
and according to Forbes 2014, Gautam Adani is 11th richest person in India.
Questions:
1. Describe the different stage through which Adani Power Ltd came through?
2. Explain the strategies of Adani Power Ltd adopted?
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MODULE 2
2.1 Project
According to the PMBOK (Project Management Body of Knowledge) 3rd edition, A project
is defined as a “temporary endeavour with a beginning and an end and it must be used to
create a unique product, service or result”. Further, it is progressively elaborated. What this
definition of a project means is that projects are those activities that cannot go on indefinitely
and must have a defined purpose.
A project is an activity to meet the creation of a unique product or service and thus activities
that are undertaken to accomplish routine activities cannot be considered projects. For
instance, if your project is less than three months old and has fewer than 20 people working
on it, you may not be working in what is called a project according to the definition of the
term.
It has to be remembered that the term temporary does not apply to the result or service that is
generated by the project. The project may be finite but not the result. For instance, a project
to build a monument would be of fixed duration whereas the result that is the monument may
be for an indefinite period in time.
A project is an activity to create something unique. Of course, many of the office buildings
that are built are similar in many respects but each individual facility is unique in its own
way.
Finally, a project must be progressively elaborated. This means that the project progresses in
steps and continues by increments. This also means that the definition of the project is refined
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at each step and ultimately the purpose of the progress is enunciated. This means that a
project is first defined initially and then as the project progresses, the definition is revisited
and more clarity is added to the scope of the project as well as the underlying assumptions
about the project.
2.2 DEFINITION
A Project is a temporary, unique and progressive attempt or endeavour made to produce some
kind of a tangible or intangible result (a unique product, service, benefit, competitive
advantage, etc.). It usually includes a series of interrelated tasks that are planned for
execution over a fixed period of time and within certain requirements and limitations such as
cost, quality, performance, others.
2.3 Key Characteristics
As follows from the given definition, any project can be characterized by these
characteristics:
2.3.1 Temporary:
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This key characteristic means that every project has a finite start and a finite end. The start is
the time when the project is initiated and its concept is developed. The end is reached when
all objectives of the project have been met (or unmet if it’s obvious that the project cannot be
completed – then it’s terminated).
2.3.2 Unique Deliverable(s):
Any project aims to produce some deliverable(s) which can be a product, service, or some
another result. Deliverables should address a problem or need analysed before project start.
2.3.3 Progressive Elaboration:
With the progress of a project, continuous investigation and improvement become available,
and all this allows producing more accurate and comprehensive plans. This key characteristic
means that the successive iterations of planning processes result in developing more effective
solutions to progress and develop projects.
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2.3.4 A single definable purpose:
End-item or result. This is usually specified in terms of cost, schedule and performance
requirements.
2.3.5 Every project is unique:
It requires the doing of something different, something that was not done previously. Even in
what are often called “routine” projects such as home construction, the variables such as
terrain, access, zoning laws, labour market, public services and local utilities make each
project different. A project is a one-time, once-off activity, never to be repeated exactly the
same way again.
2.3.6 Projects are temporary activities:
A project is an ad hoc organization of staff, material, equipment and facilities that is put
together to accomplish a goal. This goal is within a specific time-frame. Once the goal is
achieved, the organization created for it is disbanded or sometimes it is reconstituted to begin
work on a new goal (project).
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2.3.7 Projects cut across organizational lines:
Projects always cut across the regular organizational lines and structures within a firm. They
do this because the project needs to draw from the skills and the talents of multiple
professions and departments within the firm and sometimes even from other organizations.
The complexity of advanced technology often leads to additional project difficulties, as they
create task interdependencies that may introduce new and unique problems.
2.3.8 Projects involve unfamiliarity:
Because a project differs from what was previously done, it also involves unfamiliarity. And
oft time a project also encompasses new technology and, for the organization/firm
undertaking the project, these bring into play significant elements of uncertainty and risk.
2.3.9 The organization usually has something at stake when undertaking a project:
The unique project “activity” may call for special scrutiny or effort because failure would
jeopardize the organization/firm or its goals.
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2.3.10 A project is the process of working to achieve a goal:
During the process, projects pass through several distinct phases, which form and are called
the project life cycle. The tasks, people, organizations, and other resources will change as the
project moves from one phase to the next. The organizational structure and the resource
expenditures build with each succeeding phase; peak; and then decline as the project nears
completion.
2.3.11 In addition to the listed characteristics, a conventional project is:
Purposeful as it has a rational and measurable purchase
Logical as it has a certain life-cycle
Structured as it has interdependencies between its tasks and activities
Conflict as it tries to solve a problem that creates some kind of conflict
Limited by available resources
Risk as it involves an element of risk
2.3.12 Some examples of a project are:
Developing a new product or service
Constructing a building or facility
Renovating the kitchen
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Designing a new transportation vehicle
Acquiring a new or modified data system
Organizing a meeting
Implementing a new business process
2.4 DEMAND ANALYSIS AND TECHNICAL ANALYSIS
2.4.1 Demand analysis:
Demand analysis is a research done to estimate or find out the customer demand for a product
or service in a particular market.
Demand analysis is one of the important consideration for a variety of business decisions like
determining sales forecasting, pricing products/services, marketing and advertisement
spending, manufacturing decisions, expansion planning etc.
Demand analysis covers both future and retrospective analysis so that they can analyse the
demand better and understand the product/service's past success and failure too.
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2.4.2 Importance of demand analysis and its uses:
The analysis of demand theory is very much important in the business decision. Demand
analysis helps firm forecast the market which is of importance in the modern business
activities. It helps to design the appropriate pricing policy.
In the present global market, it is not at all possible for a firm to exist without adequate
knowledge on consumer behaviour. Consumer behaviour informs determines demand for a
commodity in the market.
The importance of demand analysis is below:
Pricing Policy:
The importance of demand analysis in business decision is that it helps firms design their
pricing policy. Firm can choose either to lower or raise a product’s price by observing trend
of consumer demand for that product. Producers can’t fix price for their products without first
understanding the market demand for them.
Investment Policy:
Demand analysis helps firm adopt appropriate investment policy. Based on the nature of
demand for a particular product in a particular market, firms can make their investment
decisions.
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Market forecast:
Demand analysis helps business firms in their investment decisions, based on the prevailing
response of consumers towards a particular commodity, firm can foresee the demand. This in
turn helps them in investing on an appropriate industry.
2.4.3 Objectives of Demand Analysis:
According to Dean, demand analysis has four managerial purposes:
Forecasting demand,
Manipulating demand,
Appraising salesmen’s performance for setting their sales quotas, and
Watching the trend of the company’s competitive position.
Of these the first two are most important and the last two are ancillary to the main economic
problem of planning for profit.
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Forecasting Demand:
Forecasting refers to predicting the future level of sales on the basis of current and past
trends. This is perhaps the most important use of demand studies. True, sales forecast is the
foundation for planning all phases of the company’s operations. Therefore, purchasing and
capital budget (expenditure) programmes are all based on the sales forecast.
Manipulating Demand:
Sales forecasting is most passive. Very few companies take full advantage of it as a technique
for formulating business plans and policies. However, “management must recognize the
degree to which sales are a result only of the external economic environment but also of the
action of the company itself.
2.4.4 TECHNICAL ANALYSIS:
Technical analysis is a trading discipline employed to evaluate investments and identify
trading opportunities by analysing statistical trends gathered from trading activity, such as
price movement and volume. Unlike fundamental analysts, who attempt to evaluate a
security's intrinsic value, technical analysts focus on patterns of price movements, trading
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signals and various other analytical charting tools to evaluate a security's strength or
weakness.
Technical analysis can be used on any security with historical trading data. This includes
stocks, futures, commodities, fixed-income, currencies, and other securities. In this tutorial,
we’ll usually analyse stocks in our examples, but keep in mind that these concepts can be
applied to any type of security. In fact, technical analysis is far more prevalent in
commodities and forex markets where traders focus on short-term price movements.
2.4.4.1 The Basics of Technical Analysis:
Technical analysis as we know it today was first introduced by Charles Dow and the Dow
Theory in the late 1800s.1 Several noteworthy researchers including William P. Hamilton,
Robert Rhea, Edson Gould, and John Magee further contributed to Dow Theory concepts
helping to form its basis. In modern day, technical analysis has evolved to included hundreds
of patterns and signals developed through years of research.
Technical analysts believe past trading activity and price changes of a security can be
valuable indicators of the security's future price movements. They may use technical analysis
independent of other research efforts or in combination with some concepts of intrinsic value
considerations but most often their convictions are based solely on the statistical charts of a
security. The CMT Association is one of the most popular groups supporting technical
analysts in their investments with the Chartered Market Technicians (CMT) designation, a
popular certification for many advanced technical analysts.2
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2.4.4.2 The Underlying Assumptions of Technical Analysis:
There are two primary methods used to analyse securities and make investment
decisions: fundamental analysis and technical analysis.
Fundamental analysis involves analysing a company’s financial statements to determine the
fair value of the business, while technical analysis assumes that a security's price already
reflects all publicly-available information and instead focuses on the statistical analysis of
price movements.
Technical analysis attempts to understand the market sentiment behind price trends by
looking for patterns and trends rather than analysing a security's fundamental attributes.
Charles Dow released a series of editorials discussing technical analysis theory. His writings
included two basic assumptions that have continued to form the framework for technical
analysis trading.
Markets are efficient with values representing factors that influence a security's price, but
Market price movements are not purely random but move in identifiable patterns and trends
that tend to repeat over time.
The efficient market hypothesis (EMH) essentially means the market price of a security at
any given point in time accurately reflects all available information, and therefore represents
the true fair value of the security. This assumption is based on the idea that the market price
reflects the sum total knowledge of all market participants. While this assumption is generally
believed to be true, it can be affected by news or announcements about a security that may
have varied short-term or long-term influence on a security’s price. Technical analysis only
works if markets are weakly efficient.
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The second basic assumption underlying technical analysis, the notion that price changes are
not random, leads to the belief of technical analysts that market trends, both short-term and
long-term, can be identified, enabling market traders to profit from investing based on trend
analysis.
2.4.4.3 Today, technical analysis is based on three main assumptions:
The market discounts everything:
Many experts criticize technical analysis because it only considers price movements and
ignores fundamental factors. Technical analysts believe that everything from a company's
fundamentals to broad market factors to market psychology are already priced into the stock.
This removes the need to consider the factors separately before making an investment
decision. The only thing remaining is the analysis of price movements, which technical
analysts view as the product of supply and demand for a particular stock in the market.
Price moves in trends:
Technical analysts believe that prices move in short-, medium-, and long-term trend. In other
words, a stock price is more likely to continue a past trend than move erratically. Most
technical trading strategies are based on this assumption.
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History tends to repeat itself:
Technical analysts believe that history tends to repeat itself. The repetitive nature of price
movements is often attributed to market psychology, which tends to be very predictable
based on emotions like fear or excitement. Technical analysis uses chart patterns to
analyse these emotions and subsequent market movements to understand trends. While
many form of technical analysis have been used for more than 100 years, they are still
believed to be relevant because they illustrate patterns in price movements that often
repeat themselves.
2.4.4.4 How Technical Analysis Is Used:
Technical analysis attempts to forecast the price movement of virtually any tradable
instrument that is generally subject to forces of supply and demand, including stocks, bonds,
futures and currency pairs. In fact, some view technical analysis as simply the study of supply
and demand forces as reflected in the market price movements of a security. Technical
analysis most commonly applies to price changes, but some analysts track numbers other than
just price, such as trading volume or open interest figures.
Across the industry there are hundreds of patterns and signals that have been developed by
researchers to support technical analysis trading. Technical analysts have also developed
numerous types of trading systems to help them forecast and trade on price movements.
Some indicators are focused primarily on identifying the current market trend, including
support and resistance areas, while others are focused on determining the strength of a trend
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and the likelihood of its continuation. Commonly used technical indicators and charting
patterns include trend lines, channels, moving averages and momentum indicators.
In general, technical analysts look at the following broad types of indicators:
o Price trends
o Chart patterns
o Volume and momentum indicators
o Oscillators
o Moving averages
o Support and resistance levels
2.4.4.5 Limitations of Technical Analysis:
The major hurdle to the legitimacy of technical analysis is the economic principle of
the efficient markets hypothesis. According to the EMH, market prices reflect all current and
past information already and so there is no way to take advantage of patterns or mispricing to
earn extra profits, or alpha. Economists and fundamental analysts who believe in efficient
markets do not believe that any actionable information is contained in historical price and
volume data, and furthermore that history does not repeat itself; rather, prices move as
a random walk.
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A second criticism of technical analysis is that it works in some cases but only because it
constitutes a self-fulfilling prophesy. For example, many technical traders will place a stop-
loss order below the 200-day moving average of a certain company. If a large number of
traders have done so and the stock reaches this price, there will be a large number of sell
orders, which will push the stock down, confirming the movement traders anticipated. Then,
other traders will see the price decrease and also sell their positions, reinforcing the strength
of the trend. This short-term selling pressure can be considered self-fulfilling, but it will have
little bearing on where the asset's price will be weeks or months from now. In sum, if enough
people use the same signals, they could cause the movement foretold by the signal, but over
the long run this sole group of traders cannot drive price.
2.4.4.6 CHARACTERISTICS OF TECHNICAL ANALYSIS:
Technical analysis employs models and trading rules based on price and volume
transformations, such as the relative strength index, moving averages, regressions, inter-
market and intra-market price correlations, business cycles, stock market cycles or,
classically, through recognition of chart patterns.
Technical analysis stands in contrast to the fundamental analysis approach to security and
stock analysis. In the fundamental equation M = P/E technical analysis is the examination of
M (multiple). Multiple encompasses the psychology generally abounding, i.e. the extent of
willingness to buy/sell. Also in M is the ability to pay as, for instance, a spent-out bull can't
make the market go higher and a well-heeled bear won't. Technical analysis analyses price,
volume, psychology, money flow and other market information, whereas fundamental
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analysis looks at the facts of the company, market, currency or commodity. Most large
brokerage, trading group, or financial institutions will typically have both a technical analysis
and fundamental analysis team.
In the 1960s and 1970s it was widely dismissed by academics. In a recent review, Irwin and
Park reported that 56 of 95 modern studies found that it produces positive results but noted
that many of the positive results were rendered dubious by issues such as data snooping, so
that the evidence in support of technical analysis was inconclusive; it is still considered by
many academics to be pseudoscience. Academics such as Eugene Fama say the evidence for
technical analysis is sparse and is inconsistent with the weak form of the efficient-market
hypothesis. Users hold that even if technical analysis cannot predict the future, it helps to
identify trends, tendencies, and trading opportunities.
While some isolated studies have indicated that technical trading rules might lead to
consistent returns in the period prior to 1987, most academic work has focused on the nature
of the anomalous position of the foreign exchange market. It is speculated that this anomaly
is due to central bank intervention, which obviously technical analysis is not designed to
predict recent research suggests that combining various trading signals into a Combined
Signal Approach may be able to increase profitability and reduce dependence on any single
rule
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2.5 Environmental impact Analysis
An environmental impact analysis is typically conducted to assess the potential impact a
proposed development project will have on the natural and social environment. This may
include an assessment of both the short- and long-term effects on the physical environment,
such as air, water and/or noise pollution; as well as effects on local services, living and health
standards, and aesthetics.
In enacting the National Environmental Policy Act (NEPA) of 1969, Congress required all
agencies of the Federal government to give equal consideration to environmental
consequences as well as to economic motivations and technological feasibility when making
a decision that could affect the quality of the human and natural environment. NEPA also
established the Council on Environmental Quality within the Executive Office of the
President to ensure that federal agencies would meet their obligations under the Act.
One provision of the law requires that an Environmental Impact Statement (EIS) be written
for major federal actions and made available to all, including to the general public. An EIS
must include: the environmental impacts of a proposed action; unavoidable adverse
environmental impacts; alternatives—including no action; the relationship between short-
term uses of the environment and maintenance of long-term ecological productivity;
irreversible and irretrievable commitments of resources; and secondary/cumulative effects of
implementing the proposed action.
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Now, most state and local governments also require that environmental impact analyses be
conducted prior to any major development projects.
Environmental impact analyses are often challenging because they call for making
projections with incomplete information. Methods of assessing the impacts typically include
both objective and subjective information making it difficult to quantify. Therefore, the
methods are frequently seen as complex and, oftentimes, controversial. Despite being a
requirement for many development projects, the function of an environmental impact
statement is merely procedural.
There is no specific legal force of action if information stemming from an environmental
impact analysis confirms that a particular project may harm the environment. As a result, it is
often left up to the courts to rule on whether risks to the environment are overstated or not.
Although an environmental impact analysis often raises more questions than it answers as it
examines the various links between social, economic, technological, and ecological factors
involved in a potential development project, it also provides a practical and interesting
approach to the understanding and appreciation of the many complexities and uncertainties
involved with these interrelationships.
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2.5.1 Performing an EIA:
The important stages in the environmental impact analysis and its important keys are listed
as follows:
2.5.1.1 Scoping:
This is a process that helps determine the coverage or the scope itself of the EIA. Scoping
also is a process that identifies the key issues of the EIA before the detailed studies. Scoping
should be carried out in the earliest stage of the project planning, and it should be an open
and involving practice. A scoping practice can identify the main issues quickly by the
planning authorities.
2.5.1.2 Baseline studies:
A baseline study is an important reference point from which to conduct the EIA.
The term baseline refers to a collection of background information of the social, economic,
and biophysical settings for the proposed project area. Baseline data are collected for two
main purposes:
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To provide a description of the status and trends of environmental factors against
predicted changes that can be compared and evaluated in terms of importance.
To provide means of detecting actual change by monitoring.
2.5.1.3 Predicting and assessing impacts:
This is to cover and consider the impact prediction, uncertainties, and comparison of
alternatives for impact prediction. The prediction should be based on the available
environmental baseline of the project data. The prediction can be described in quantitative
terms or even in qualitative terms.
2.5.1.4 Mitigation:
This briefly describes the concept, objectives, and types of mitigation measures. It also
prevents adverse effects. Mitigation includes three important measures, each of them has a
different meaning:
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2.5.1.5 Prevent:
The most effective approach toward the adverse effects. It is a better solution than trying to
ballast their effect through specific mitigation measures.
2.5.1.6 Reduce:
If the adverse effects cannot be prevented, the steps that should be taken are the methods to
reduce the adverse effects.
2.5.1.7 Offset:
When the effects cannot be prevented or reduced, they may be offset by remedial or
compensatory actions.
2.5.1.8 Monitoring:
This is the most important issue of an EIA. Monitoring comes along with some explanations
on monitoring principles, types, and institutional aspects. It also involves checking that the
development proceeds in accordance with the planning permission. There are three types of
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monitoring: baseline monitoring, impact monitoring, and compliance monitoring. Monitoring
should be permanent and performed for a long period. Interruptions in monitoring may result
in an inaccurate conclusion for the project impact.
2.6 Managerial Appraisal
A performance appraisal, also referred to as a performance review, performance
evaluation (career) development discussion, or employee appraisal is a method by which the
job performance of an employee is documented and evaluated. Performance appraisals are a
part of career development and consist of regular reviews of employee performance
within organizations. Annual performance reviews have been criticized as providing
feedback too infrequently to be useful, and some critics argue performance reviews in general
do more harm than good.
A performance appraisal is a systematic, general and periodic process that assesses an
individual employee's job performance and productivity in relation to certain pre-established
criteria and organizational objectives.
Other aspects of individual employees are considered as well, such as organizational
citizenship behaviour, accomplishments, potential for future improvement, strengths and
weaknesses, etc.
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To collect PA data, there are three main methods: objective production, personnel, and
judgmental evaluation. Judgmental evaluations are the most commonly used with a large
variety of evaluation methods.
Historically, PA has been conducted annually (long-cycle appraisals); however, many
companies are moving towards shorter cycles (every six months, every quarter), and some
have been moving into short-cycle (weekly, bi-weekly) PA. The interview could function as
"providing feedback to employees, counseling and developing employees, and conveying and
discussing compensation, job status, or disciplinary decisions PA is often included
in performance management systems. PA helps the subordinate answer two key questions:
first, "What are your expectations of me?" second, "How am I doing to meet your
expectations?
Performance management systems are employed "to manage and align" all of an
organization's resources in order to achieve highest possible performance "How performance
is managed in an organization determines to a large extent the success or failure of the
organization. Therefore, improving PA for everyone should be among the highest priorities of
contemporary organizations".
Some applications of PA are compensation, performance improvement, promotions,
termination, test validation, and more.
While there are many potential benefits of PA, there are also some potential drawbacks. For
example, PA can help facilitate management-employee communication; however, PA may
result in legal issues if not executed appropriately, as many employees tend to be unsatisfied
with the PA process.
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PAs created in and determined as useful in the United States are not necessarily able to be
transferable cross-culturally
Project appraisal is the process of assessing, in a structured way, the case for proceeding with
a project or proposal, or the project's viability. It often involves comparing various options,
using economic appraisal or some other decision analysis technique.
The entire project should be objectively appraised for the same feasibility study should be
taken in its principal dimensions, technical, economic, financial, social and so far to establish
the justification of the project or The project appraisal is the process of judging whether the
project is profitable or not to client. Or it is process of detailed examination of several aspects
of a given project before recommending of some projects.
2.6.1 Process:
Initial Assessments
Define problem and long-list
Consult and short-list
Evaluate alternatives
Compare and select Project appraisal.
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2.6.2 Types of appraisal:
Technical appraisal
Project appraisal
Legal appraisal
Environment appraisal
Commercial and marketing appraisal
Financial/economic appraisal
organizational or management appraisal
o Cost-benefit analysis.
Economic appraisal
o Cost-effectiveness analysis.
o Scoring and weighting.
2.6(a) CASE:
Case Study: Empxtrack Improves Performance Appraisal Process for Saksoft
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Transition from Paper-Based Process to Automated Workflows: Empxtrack Improves
Performance Appraisal Process for Saksoft
Introduction
Saksoft is an Information Management and Business Intelligence company managing more
than 1000 employees deployed in multiple countries, including India, US, UK, and
Singapore. This case study discusses the challenges that the organization faced and how
Empxtrack helped them in overcoming these challenges.
Challenges
The time-consuming and ineffective annual performance appraisal was causing
dissatisfaction amongst employees and managers.
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Productivity gaps occurred due to unclear work expectations and irregular feedback provided
to employees. Being a rapidly growing organization, Saksoft found that the manual appraisal
system wasn’t able to meet the changing requirements, when it came to employee appraisals.
Managing spreadsheets and numerous emails related to appraisal process became
overwhelming for all the stakeholders.
Tracking employee goal achievements, prioritizing important tasks, access to past appraisal
data, and absence of constructive ongoing feedback were some challenges which made their
appraisal process disorganized and inconsistent.
The company needed a well-structured performance review process to continue being a fast-
growing on-demand technology solution provider.
Solution
Saksoft began its search for a reliable appraisal software. They came across few products
which were designed to meet needs of much smaller or larger organizations. After looking at
several HR products, the company decided to go with cloud-based Empxtrack Goal
Setting and Appraisal software.
Just after few discussions with Empxtrack team and product demonstration, Saksoft knew
that Empxtrack was best suited for their needs. Everything took place smoothly and quickly,
starting from the product implementation to data upload.
Benefits
After implementing Empxtrack, the company found itself saving quite a few hours on
managing goal setting and appraisal process.
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Empxtrack could successfully automate the performance appraisal for the organization that
made it easier for all stakeholders to actively participate in the process and make it more
meaningful.
Now Saksoft has a well-structured employee goal setting process where goals are mutually
agreed by managers and employees, and managers can track employee progress at any time.
As an added benefit, Empxtrack offers configurable features to add and review goals
throughout the year and get quick status of goal sheets.
Providing constructive feedback to employees has become an ongoing process in the
organization. The leadership also agrees that the availability of past appraisal data has made it
easier for their new managers to get an idea about variations in an employee’s performance
and make informed decisions. Managing multiple appraisal plans for different group of
employees has become easier.
While reducing the administrative burden for HR, Empxtrack has made it possible to collect
feedback from multiple sources in just few clicks. The appraisal process is now more
accurate, transparent and meaningful.
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2.7(a) CASE:
On February 5, 1997, the IBM Project Management Centre of Excellence (PMCOE) was
born with a charter to drive IBM’s transition to and support of professional project
management worldwide, a competency deemed necessary to ensure effectiveness and success
within a matrix enterprise.
Since its inception, the IBM PMCOE—working hand in hand with all business units
worldwide—ensured that we became a project-based enterprise that applies and integrates
project Management disciplines into all core business processes and systems.
The initial charter drove more consistent and broader use of project management disciplines,
including the formalization of the position of project manager throughout our organization.
Over time, the IBM PMCOE has driven the transformation and integration of project
management into the fabric of the organization.
Our professionals are more experienced and capable in their abilities to get their work done
using project management disciplines.
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In addition to being one of the world’s largest IT and consulting services company, IBM is a
global business and technology leader, innovating in research and development to shape the
future of society at large.
Today, we see ourselves as much more than an Information Technology Company. In April
2016, IBM’s Chairman, President and CEO, Ginni Rometty described the dawn of a new era,
shaped by AI computing and cloud platforms.
She described how the IT industry is fundamentally re-ordering at an unprecedented pace. In
response, IBM is becoming much more than a “hardware, software, services” company. We
are emerging as an AI solutions and cloud Platform Company.
Fundamental to the success of this transformation is the skills and abilities of our workforce.
We are being challenged to be relevant to the marketplace of tomorrow. As a focus on
continuous learning, we have Think40 where we are encouraged to spend 40 hours every year
to up-skill.
We are encouraged to have a point of view, be socially eminent and be comfortable in a
customer facing situation.
We are provided with the tools and techniques, including new ways of learning such as video,
gaming and interactive eLearning techniques to enable this objective. New phrases and
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concepts are creeping into the everyday vocabulary of our teams, such as agile, design
thinking, calculated risk-taking and better collaboration.
IBM’s PMCOE is no exception to this transformation—and 2017 marked the 20th
anniversary of the Centre of Excellence, which clearly shows our ongoing commitment to
project management as a key profession within the corporation.
Our PM curriculum is delivered globally and across all lines of business, helping to drive a
consistent base of terminology and understanding across the company. And our project and
program management profession has established an end-to end process to “quality assure”
progress through the project management career path.
Questions 1:
Referring to the extract, the company reorganised to include project management in its
operations. With this in mind, justify why companies have an increased interest in project
management in recent times.
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Question 2:
Over time, the IBM PMCOE has driven the transformation and integration of project
management into the fabric of the organization”. Evident from this assertion is that this
company has and continues to align projects to its strategy.
Discuss (in a paragraph) the importance of aligning projects to strategy.
Justify with real life examples why the project manager should understand the strategic
position of the firm.
Question 3:
You have been appointed the project manager at IBM, a company operating in a fast paced IT
market. You wish to emphasise to the company bosses the need establish the sound project
priority system, and highlight some of the techniques you would employ in selecting projects
fairly. Write a discussion of not more than one page in account of these two aspects. (10
Marks)
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MODULE 3
3.1 Entrepreneurial finance
Entrepreneurial finance is the study of value and resource allocation, applied to new ventures.
It addresses key questions which challenge all entrepreneurs: how much money can and
should be raised; when should it be raised and from whom; what is a reasonable valuation of
the start-up; and how should funding contracts and exit decisions be structured.
3.2 Sources of Finance
Sources of finance for business are equity, debt, debentures, retained earnings, term loans,
working capital loans, letter of credit, euro issue, venture funding etc.
These sources of funds are used in different situations. They are classified based on time
period, ownership and control, and their source of generation. It is ideal to evaluate each
source of capital before opting for it.
Sources of capital is the most explorable area especially for the entrepreneurs who are about
to start a new business. It is perhaps the toughest part of all the efforts.
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3.2.1 There are various capital sources, we can classify on the basis of different
parameters:
3.2.1.1 The founders:
Explanation: have some savings left yourself? Just received a nice bonus? Why not invest it
in your own company! You don’t necessarily have to invest in terms of cash. If a co-founder
or a partner invests his/her hours in helping you start your business next to his/her job that is
also an investment. Or what about a founder making an office, machines or a technology
license available? All of these are sources of investment. Temporarily not paying yourself
any wage is also an option.
When to choose this source of financing: founders can obviously invest in their own company
at all times. However, you usually see this happening when the company has just been
founded. When a company is set up, in many cases no revenues or external financing is
available, while there are always some start-up costs to cover.
In terms of the size of the investment you can go all out (as far as your bank account allows
you to). Advantage of this form of investment: it can be perceived as positive by an external
financer that a founder has some “skin in the game” as well. Why would another person take
the risk of investing in your company if you have never been prepared to take the risk
yourself?
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3.2.1.2 The 3F’s: family, friends and fools:
Explanation: before you start approaching professional investors, it might be worthwhile to
try to raise some funding within your network of family, friends and fools. These are often
people from your family or social network who are close to you and mainly invest because
they have faith in your idea or in you as a person/entrepreneur. As they are usually not
professional investors you should not expect a professional assessment of your plans from
such an investor.
When to choose this source of financing: this type of financing is often pursued to cover the
costs of setting up a new company or to bridge the gap to a first round of seed funding. The
advantage of this funding type is that it is a quick and cheap way of collecting cash,
especially if you take into account the risk that the 3Fs take (which they are not always aware
of themselves: hence “fools”).
Usually the amounts concerned with this type of investment are not too high and are typically
repaid as a loan (with or even without interest) or are invested in exchange for a small equity
share in the company. When the invested amounts, share percentages and the level of
professionalism increase, then we speak of angel investing.
3.2.1.3 Angel/informal:
Explanation: angel or informal investors are experienced entrepreneurs who have some funds
available (often from previously exited ventures) and invest those in new companies to help
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other entrepreneurs succeed in their business. Angel investments start around €50,000 and
can amount up to (more than) a million euros, as angels often invest together in groups.
When to choose this source of financing: go for an angel if you are looking for seed funding
within the abovementioned range. Angels typically offer “smart capital”: so not just money,
but also network and knowledge within specific sectors. Try to find an angel that fits with
your company in terms of experience and sector knowledge. You can find two overviews of
active angel investors in the Netherlands here and here.
3.2.1.4 Crowdfunding:
Explanation: nowadays it is hard to imagine crowdfunding once didn’t exist in the Dutch (and
international) financing ecosystem. With crowdfunding, the “crowd” finances the funding
need of a company. Usually crowdfunding is performed via an online platform where
entrepreneurs offer investment opportunities on one side of the platform and on the other side
of the platform a large group of people invest small amounts to meet the entrepreneur’s
investment need.
When to choose this source of financing: in general there are three types of crowdfunding:
loans, pre-orders/donations and convertible loans. Are you looking for a loan, but is it hard to
secure one from the bank because your risk profile is too high? Then try loan crowdfunding.
Do you have a prototype available and do you want to test the product/market fit, but you
cannot finance the production/delivery of the first batch of actual products? Then go for pre-
orders/donations.
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Well-known examples of suitable platforms are Kickstarter and Indiegogo. These platforms
are mainly suitable for products/projects/gadgets aimed at the consumer market with a strong
design element to them.
Convertible loans have the following advantages: 1) no shares are being issued, 2) valuation
discussions are postponed until the moment the value of a company can be better determined
and 3) it is an easier, faster and cheaper process than an actual share transfer. Leapfunder is
an example of a Dutch crowdfunding platform that works with convertible loans.
Since the people that invest via crowdfunding platforms are not always professional
investors, crowdfunding is better suited for propositions that are not too complex or technical
and that are easily understood by the general public (that’s why it’s called “crowd” funding).
Think for example of consumer products.
There are also crowdfunding platforms with a specific focus, so take that into account in your
choice. Dutch crowdfunding platform Oneplanetcrowd for instance focuses specifically on
sustainable projects with a positive impact. Here you can check out a list of crowdfunding
platforms in the Netherlands.
3.2.1.5 Subsidies:
Explanation: a huge number of tax/financial schemes (e.g. in the Netherlands: WBSO,
InnovationBox, vouchers) and subsidies (e.g. Horizon2020, regional subsidies) exist. The aim
of subsidies/schemes is typically to stimulate entrepreneurship, innovation/R&D or economic
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growth within a certain geographical area. That is why every region, every country and even
the entire EU has its own subsidies.
When to choose this source of financing: ALWAYS, we can be very brief about that ;)
Subsidies are relevant during almost every company stage. From start-up to corporate, from
freelancer to publicly traded company.
As mentioned before, many subsidies only focus on a certain geographical area and often
there is also a specific sector focus. Therefore it is important to look for a subsidy that fits
with your company. For an overview of available subsidies/schemes in the Netherlands,
check out the website of the RVO.
Keep in mind that administrative and reporting requirements often apply to subsidy
applications and grants. You need to be able to justify the costs for which you request a
subsidy and sometimes it is mandatory to have this justification audited as well.
3.2.1.6 Venture capital/private equity:
Explanation: private equity is the collective name for professional investment firms that
invest in companies that are not publicly listed. Venture capital (VC) is a type of private
equity which focuses specifically on risky investments in terms of early stage companies.
People often speak of private equity when investing in larger organizations that are existing
for some time already. Venture capital on the other hand involves investing in growth capital
of young companies. In general, VCs have a fund available of a specific size (e.g. € 100
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million) that has to be invested within a certain period of time (e.g. 10 years) in a bunch of
companies with different risk profiles to spread the risk across the portfolio. The aim is to sell
the shares after a couple of years with a certain return/profit.
When to choose this source of financing: venture capital is mainly suitable for companies that
have already passed the “seed stage” and are looking for series A or series B funding. This
type of funding is therefore meant to help companies grow faster than when they would grow
organically, for instance if a firm wants to internationalize.
VCs typically invest in the range of about €500,000 to €20 million. To raise funding from a
VC a company’s product/market fit has to be proven already and steadily growing revenue
streams have to exist (except perhaps in the medical sector). However, there are also venture
capitalists with seed funds (starting at €200,000) that offer seed capital to companies that
have not met the abovementioned criteria yet.
The advantage of VCs is that they can fund multiple rounds, where an angel or other seed
investor is not always capable of doing so. VCs often also have a specific sector focus and
good knowledge/network within this sector. For a list of VCs active in the Netherlands, take a
look at this overview.
3.2.1.7 Debt financing: the bank:
Explanation: even though there are a number of banks in the Netherlands that have started
venture capital funds (including Rabobank, ING and ABN AMRO), banks are generally more
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risk averse than for example angels, seed investors and normal VCs. This does not mean that
banks do not finance entrepreneurs, on the contrary!
However, they are more likely to invest in SMEs, in companies with lower risk profiles (than
start-ups for instance) and when companies can offer collateral. For an early-stage start-up
that does not fit in the focus of the VC funds, it can thus be difficult to secure funding from a
bank. However, a number of banks in the Netherlands do have partnerships with
crowdfunding platforms.
When to choose this source of financing: as mentioned, banks generally take less risk than,
for example, VCs and angels. However, if you can provide collateral then the bank is a very
good option. Are you thus looking for working capital financing, stock financing or financing
to cover investments in buildings/machines, then the bank is a very good option to consider.
Companies generating stable income streams and that have been growing organically for a
number of years (and are thus less risky) can certainly also turn to the bank. A big advantage
of debt financing: you do not have to give away a part of your company in terms of equity,
which means that in the long term it can turn out to be a much cheaper way of financing than
for example securing funding from an angel investor or VC.
3.2.1.8 Factoring:
Explanation: in short, factoring is a way of financing working capital by lowering the size of
accounts receivable. Example: if you send an invoice to a customer, but it takes him/her 60
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days to pay, then you can decide to ‘sell’ this invoice to a factoring company (against a
certain payment of course).
The factoring company will pay for the invoice immediately (or provides you with a loan) so
that you do not have to wait 60 days before the invoice is paid. A factoring company can also
take over the risk that a customer does not pay.
When to choose this source of financing: first of all, it goes without saying that you must
have clients in order to be eligible for factoring. If you do not have any paying customers,
factoring is not an option. If you do have customers, factoring can be very useful if you have
to deal with long payment terms.
Do you have large corporates as your customers? Then it can take a while for invoices to be
paid and there is often not much you can do about it. In order to keep your working capital
position healthy, factoring can be a good choice. Is accounts receivable management costing
you a lot of time and effort? Do you often suffer from bad debtors? Then factoring could also
be an outcome.
3.2.1.9 Leasing:
Explanation: do you have to make large investments in assets such as computers and/or
machines? Why don’t you lease instead of purchasing them? By leasing assets companies can
spread payments over a longer period of time instead of having to fulfil the full payment of
an investment upon the moment they decide to purchase an asset.
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When to choose this source of financing: when a company is capital-intensive, meaning it is
dependent on the use of (sometimes expensive) assets such as machinery.
3.2.1.10 Suppliers:
Explanation: do you purchase a lot from suppliers? Then try to negotiate favourable payment
terms with them. If your customers have long payment terms, for instance, you can try to
agree to longer payment terms with your suppliers as well so that you do not run into any
problems concerning your working capital. On the other hand, you could also try to discuss
discounts in the event you pay your suppliers very fast.
When to choose this source of financing: choose this form of financing if you have good
relationships with your suppliers or if you have a good negotiating position towards them (for
example if you are a large/important customer for them).
3.2.1.11 Initial Coin Offering:
Explanation: for an Initial Coin Offering (ICO), a company typically writes a whitepaper to
pitch a certain business idea and asks the general public to finance the idea using Bitcoin
and/or altcoins (other cryptocurrencies than Bitcoin). In return, the investor receives the new
altcoin generated by the company during the ICO.
Usually this newly generated altcoin is at the centre of the company’s business activities and
thus leveraged in a way that increases its value. As soon as this altcoin becomes tradable,
investors can resell it (and hopefully make a profit). The ICO is therefore very similar to an
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IPO (see section 12 below), but uses cryptocurrency instead of shares that can be converted
into “normal money”. Here you can find an overview of cryptocurrencies currently existing.
When to choose this source of financing: it is possible to do an ICO as a non-block chain
company, but currently the majority of the companies that do an ICO are still block
chain/cryptocurrency companies. This is due to the fact that the new altcoin generated by an
ICO often has a function within the company to increase its value. The speculation on the fact
that the value of the new altcoin will indeed increase is what attracts investors.
3.2.1.12 Initial Public Offering:
Explanation: the holy grail of financing: the Initial Public Offering (IPO)! An IPO is the
public listing of a company, which means that it is the first time a company offers its shares
to the general public.
This means that practically anyone in the world (individuals or institutional investors) can
invest in the company by buying shares at a certain value.
Before an IPO, a company is private, which means that it often only has a limited number of
investors who have invested early-stage or growth capital.
Think of the founders, angels and VCs for instance. Spotify just performed a public offering
and there are rumours about the Dutch company Adyen performing an IPO soon as well.
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When to choose this source of financing: for an initial public offering to be successful, a
company must be able to demonstrate years of strong growth and its proposition typically
includes a certain network effect/scalability.
Growth can be defined in several ways. This can be turnover or profit, but also, for example,
the number of customers or active users.
For example, Spotify is a loss-making company, but has been growing enormously over the
past couple of years (in terms of turnover and users).
A company also has to demonstrate transparency and confidence that this growth will
continue in the coming years, because it has to win the trust of the general public that the
value of the shares (which they buy today) will rise in the future so that they can make a
profit on their investment.
For the investors who owned a share in the company already before the IPO, a public listing
can turn out to be very attractive (financially).
An IPO should not be underestimated though: it is a very costly process and results in many
reporting requirements towards the public, imposed by strict government regulations.
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3.3 Preparation of projected financial statement
Projected financial statements provide assumptions about a given company’s financial
situation in the future, whether it is an annual or quarterly projection. Preparing projected
financial statements is a lengthy task, as it requires analysis of the company’s finances,
reading previous budgets and income statements, and examining the company’s current
financial situation to make assumptions about the business’ financial potential. The process is
the same for smaller, sole-proprietor businesses and well-established corporations.
3.3.1 Steps to prepare projected financial statement:
3.3.1.1 Start with a sales forecast:
Set up a spreadsheet projecting your sales over the course of three years. Set up different
sections for different lines of sales and columns for every month for the first year and either
on a monthly or quarterly basis for the second and third years.
"Ideally you want to project in spreadsheet blocks that include one block for unit sales, one
block for pricing, a third block that multiplies units times price to calculate sales, a fourth
block that has unit costs, and a fifth that multiplies units times unit cost to calculate cost of
sales (also called COGS or direct costs)," Berry says.
"Why do you want cost of sales in a sales forecast? Because you want to calculate gross
margin. Gross margin is sales less cost of sales, and it's a useful number for comparing with
