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
 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:-
ξ Based on demand or raw material based
projects
ξ 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:-
ϖ Service projects

ϖ Welfare projects

ϖ Educational projects

ϖ Educational projects

ϖ Research and development projects

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
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
ϢBusiness concept
ϢCurrent situation
ϢKey success factor
ϢFinancial situation/needs
2.Vision
ϢVision statement
ϢMilestones
3.Market analysis
ϢThe overall market
ϢChanges in the market
ϢMarket segments
ϢTarget market and customers
ϢCustomer needs
ϢCustomer buying decisions
4.Competitive analysis
ϢIndustry overview
ϢNature of competition
ϢChanges in the industry
ϢPrimary competitors
ϢCompetitive products/services
ϢOpportunities
ϢThreats and risks
5.Strategy
ϢKey competitive capabilities
ϢKey competitive weaknesses
ϢStrategy
ϢImplementing strategy
6.Products/services
ϢProduct/service description
ϢPositioning of products/services
ϢCompetitive evaluation of
products/services
ϢFuture products/services
7.Marketing and sales
ϢMarketing strategy
ϢSales tactics
ϢAdvertising
ϢPromotion/incentives
ϢPublicity
ϢTrade shows
 8.Operations
ϢKey personnel (Group of people willing to
obey orders)
ϢOrganizational structure
ϢHuman resources plan
ϢProduct/service delivery
ϢCustomer service/support
ϢFacilities

9.Creating the financials of the business

plan
ϢAssumptions and comments
ϢStarting balance sheets & projections
ϢProfit and loss projections
ϢCash flow projection
ϢRatio 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/advertisin
g/ distributing)
Updating the business plan:-
• Check the market acceptance

• Rectify the key errors

 • Take assistance from respective
professionals
• Revise the strategy

• Convenience the customers

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
 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:-
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)