1 BU-EDP-Module-6

Module-6:: Project Preparation & Appraisal

Definition:-project is the whole complex of activities involved in using

resources to gain benefits.

(Or)

Project is an approval for a capital investment to develop facilities to

provide goods and services.

The 3 basic attributes of a project are as follows:-

Scientifically evolved course of action

Specific objectives
Definite time perspective

Characteristics or features of a project:-

It should has clear and specific objective

Project is different from routine business activities
There are time and financial constraints
It requires team work
Project involves high degree of risk and uncertainty.

Objectives of a project:-

 Maximisation of stakeholders(part owners) wealth or market value

of equity share
 Increased production of goods and services
 Enlarging the capacity of existing projects
 increasing the internal rate of return at low risk
 They must be measurable tangible and verifiable from time to
time

Classification of projects:-

I. Quantifiable and non quantifiable projects:-

 Quantifiable projects are in which quantitative estimation of
benefits can be made.
 Projects concerned with industrial development, power generation,
and mineral development come in this category.
 Non quantifiable projects are those projects where such an
estimation or assessment is not possible

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 Projects concerning health, education and defence fall in this

category.
II. Sectoral projects:-
Ž Agriculture and allied sector(Related by common characteristics or
ancestry)
Ž Irrigation and power sector
Ž Industry and mining sector
Ž Social services sector
Ž Miscellaneous sector.
III. Techno economic projects:- 3 types
Factor intensity oriented classification:-
It mainly targets on intensives or labour intensive
Mainly labour oriented companies
Large scale investments only.
Causation oriented classification:-
 Based on demand or raw material based projects
 Mainly oriented with only raw materials
Magnitude oriented classification:-
Size of the investment is main basis for this type of projects

Ex:-large scale, medium scale, small scale.

IV. Financial institutions classification :-

 The main objective of these projects is to generate profit;
Projects under this head can be divided into
New projects
Expansion projects
Diversification projects
Modernisation projects.
V. Miscellaneous projects:-
 Service projects
 Welfare projects
 Educational projects
 Educational projects
 Research and development projects

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Importance of projects:-

 They are catalysts for economy development

 Increases employment, income generation etc.
 Provides framework for future activities of the enterprises
 Projects brings about necessary changes in the society

Stages for setting up a unit (or) enterprise

A potential entrepreneur has to pass through various stages for setting

up his small scale unit and these are as follows:-

1. Decision to be self employed (either work for him or else work

for others).
2. Identification of opportunities or project identification (consider-
demand, supply, competitor, customer expectation, advertisement)
3. Selection of the product and project formulation (step by step
investigation of resources and development of project idea)

Elements of project formulation:-

 Feasibility analysis (desirability of investing funds)

 Techno economic analysis (demand potential and optimal
technology suitable for achieving the project objectives)

Project design and network analysis (designing and

their network)

 Input analysis (assessing the input requirements)

 Financial analysis (estimating the cost, funds, operating cost of
the project)
 Social cost-benefit analysis (doing justice to the society)
 Project appraisal (evaluation of technical, managerial, commercial,
economic and financial with project proposal)
4. Selection of ownership form (choosing the sole proprietorship or
partnership)
5. Location and layout of the unit (choosing the location)
6. Designing financing scheme (choosing the financial resources)
7. Acquiring manufacturing know-how (learning manufacturing,
technology process)
8. Preparation of project report

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Project appraisal (or) evaluation:-

Evaluation is comparative study, it is stage after appraisal, and it

helps arriving at conclusion
Appraisal is independent examination, it is first stage, it brings
the facts.
Both helps in the following cases:-
Analysis of project cost
Analysis of project benefits
Analysis of project objectives

Business plan

 Business plan is a comprehensive set of guidelines for a new

venture (Any venturesome undertaking especially one with an
uncertain outcome)
 Business plan is the formal written expression of the
entrepreneurial vision, describing the strategy as operations of the
proposed venture

Advantages of business plan:-

Financial map
Confidence in management
Dealing with conflicts (Opposition between two simultaneous but
incompatible feelings)
Planning and performance
A guide to decision making
Revision of business plan
Errors are avoided

Format of a complete business plan:-

1. Summary
Ϣ Business concept
Ϣ Current situation
Ϣ Key success factor
Ϣ Financial situation/needs
2. Vision
Ϣ Vision statement
Ϣ Milestones

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3. Market analysis
Ϣ The overall market
Ϣ Changes in the market
Ϣ Market segments
Ϣ Target market and customers
Ϣ Customer needs
Ϣ Customer buying decisions
4. Competitive analysis
Ϣ Industry overview
Ϣ Nature of competition
Ϣ Changes in the industry
Ϣ Primary competitors
Ϣ Competitive products/services
Ϣ Opportunities
Ϣ Threats and risks
5. Strategy
Ϣ Key competitive capabilities
Ϣ Key competitive weaknesses
Ϣ Strategy
Ϣ Implementing strategy
6. Products/services
Ϣ Product/service description
Ϣ Positioning of products/services
Ϣ Competitive evaluation of products/services
Ϣ Future products/services
7. Marketing and sales
Ϣ Marketing strategy
Ϣ Sales tactics
Ϣ Advertising
Ϣ Promotion/incentives
Ϣ Publicity
Ϣ Trade shows
8. Operations
Ϣ Key personnel (Group of people willing to obey orders)
Ϣ Organizational structure
Ϣ Human resources plan
Ϣ Product/service delivery

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Ϣ Customer service/support
Ϣ Facilities
9. Creating the financials of the business plan
Ϣ Assumptions and comments
Ϣ Starting balance sheets & projections
Ϣ Profit and loss projections
Ϣ Cash flow projection
Ϣ Ratio analysis
Writing of a business plan/format
 Title page
 Table of contents
 Executive summary
o Mission(goals)
o Company(history)
o Business(type of service)
o Competition
o Management team(employees)
o Capital requirements
o Financial projections
o The market

Types of business plans

1. Operations plan (product/industry/supplies-monitoring)
2. Financial plan (expenses/payments)
3. Organizational plan (objective/mission/strategy)
4. Marketing plan (pricing/promoting/selling/advertising/
distributing)

Updating the business plan:-

 Check the market acceptance

 Rectify the key errors
 Take assistance from respective professionals
 Revise the strategy
 Convenience the customers

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Why some business plans fail:-

 Poor business plan

 Lack of commitment
 Lack of co operation of entrepreneur & his team
 Lack of experience
 Lack of vision
 Lack of proper market research
 Over confidence on his business/team/himself
 Lack of guidance
 Lack of customer choices/perceptions

Measuring business plan progress:-

Every business can be measured by following activities::

 Inventory (raw materials/finished goods)

 Production
 Quality
 Sales
 Disbursements (all bills paid/received)

Marketing plan
 Marketing plan is a future course of action to be taken for
attaining organizational objectives
 Marketing planning is a logical sequence of activities leading to
the setting of marketing objectives and formulation of plans for
achieving them
 Marketing planning process comprises o the following steps:-
o Assessing opportunities and threats
o Setting marketing goals
o Formulation marketing strategies and policies
o Programming of operations
o Formulation marketing mix
o Decision on resource mobilisation
o Monitoring the operations

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Essentials of effective marketing plans:-

Simple
Practical orientation
Flexible
Precise (goal oriented)
Reliable information
Motivating

Importance of marketing planning:-

 It anticipates future developments (thinking future)

 Management by objectives is made possible
 Management by exception is facilitated(time, effort)
 Optimum utilisation of resources
 It facilitates coordination
 Provides basis for control

Limitations of marketing planning:-

 Lack of clarity about goals

 Improper situation analysis
 Unrealistic goals (goals which are not possible)
 Unexpected competitive moves
 Product deficiencies

Organization plan:-

Nature or type of business

Financial requirement
Liability
Flexibility
Taxation
Control
Survival or continuity
Business secrets
Government rules and regulations

Financial plan:-
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Finance is a basic requirement of an enterprise

Finance plan provides information about requirement of finance for the

company and like----

 How much is financial requirement

 Sources from where funds will be raised
 Utilisation of funds

Estimation of financial needs:-

Every small/big firm requires two types of finance and they are-----

 Short term finance (for day to day requirements)

 Long term finance (buying fixed assets/maintain working capital)

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