Challenges & Risks Faced by SME Units: Girish Kelkar President PMI Pune Deccan India

Challenges & Risks
faced by SME units

Girish Kelkar
President PMI Pune Deccan India
Chapter
25th Sept 2008
Hyderabad
1
© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org
PMI Pune Deccan India Chapter
Vision
Nurture for excellence!

Some important achievements
 Chapter recognized as FASTEST growing chapter in Asia Region
 The Winner of 2007 PMI® Component Award for Component of the Year in the
world
 Our Vice President – Shantanu Bhamare, PMP® is recipient of Volunteer Of

The Year 2007 Award given by PMI USA for his Leadership & Outstanding
Commitment to PMI Pune chapter and PMI activities

Objectives of the presentation
Objectives:
 To give brief about problems faced by SME Units in India (Pune as an
example)
 To discuss the following issues from Project Management:

 Challenges faced by Small & Medium Enterprises in Pune about implementation
of new ideas and projects
 Challenges for Risk Management for these units
 To seek discuss possible solutions

Running a SME unit is same as running a project!
Anything that can go wrong –goes wrong!

Running SME units

Few details about Pune city
 Pune is one of the oldest cities in India and has place of
prominence in terms of Historical / Political / Social / Cultural /
Educational / Religious and Industrial activities in the India today.
 The city is more than 800 years old with rich cultural background and
heritage
 Area of the city 450sq Kms
 Current population of (Pune_Pimpri_Chinchwad metro) over 50 Million
 Pune has provided many freedom fighters (pre-independence for
Indian Politics) and eminent thinkers in India
 Pune is cultural capital of the western India and will continue to

hold this position for decades to come
 Pune has earned a name for new idea generation and provided
leadership to the country for many new initiatives in terms of cultural
reforms and advances

Few details about Pune City
 Pune has a place of pride for Education & Engineering activities &
is one of the most sought-after cities for Quality Education and
Scientific / Engineering Research
 5 Major Universities, 100 affiliated colleges (28 Engineering Colleges,
5 Medical colleges) and over 300,000 Students in Pune
 National Research Organizations

 NCL & Biotech / MIRADO / IUCCA & Overseas Communication Centre etc
 Super Computing Centre - CDAC
 Indian Meteorological Department (IMD)
 Software Technology park - one of the largest in India
 A new upcoming Biotech Park
 Research centre for Sanskrit and Oriental Languages

Few details about Pune City
Important centre for Defence Activities for India
 HQ for Southern Command Indian Army
 National Defence Academy of India
 Army School of Intelligence / Army School of Physical Training /

Armed Forces Medical College / Artificial Limb Centre
 Indian Air Force Centre for Western Command
 Many Defence Research Organizations

 High Explosives Manufacturing Unit / Ordinance Depot
 Explosive Research & Development Laboratories
 Indian Armament Technology Centre (IAT)
 Armament Research & Development Establishment (ARDE) and
many others

SMEs in Pune
 Small and Medium sized Enterprises (SME) in Pune:
 More than 10,000 small units (Average size 1 to 5 Mn USD)
 More than 500 medium sized units(Average size 5 to 10 Mn USD)
 SME supply components mainly to Large Mfg units or MNCs as Tier 1 or

Tier 2 suppliers to large units
 SME in IT / ITES sectors also work as vendors / sub-vendors to larger IT

companies
 The operations mainly dependent on the main promoters who have strong
technical background
 Entrepreneurs are first generation entrepreneurs & do not have business

background in the families
© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org 1

Manufacturing in Pune
 Pune plays a pioneering role as the Manufacturing Hub in India with over
250,000 people involved in manufacturing activities.
 The city is full of Manufacturing units-Large as well as Small & Medium

Enterprises / Auto-components industry for the world market.
 Over the last 5 decades Pune has become a hub for the Automobile
Industry for India / Asia
 Many ancillary units supplying components for such Auto units
 Pune has the largest two wheeler manufacturing facility in India (2nd
largest unit in the world)
 Pune has more than 100 large Engineering units
 Diesel Engine Manufacturing / Power Generators
 Complex Engineering Machinery for a variety of applications
 Project Engineering activities
 Electronic/Electrical Equipment Manufacturing units
 Many small and medium size pharmaceutical units

IT in Pune
 Recently Pune has also become an important Hub for the ever
growing IT / Software Industry in India.
 Pune has over 100 large IT units / 500 Medium sized units & 2500 small
units involved in the IT Industry
 There is population of over 100,000 qualified IT personnel (IT & ITES) in

Pune and Pune will continue to be an important location for the country
 Pune’s IT Industry has been catching up with Mumbai in terms of

Software Exports in the last few years

Business Environment of SME Units
Units generally set up by technocrats using personal funds:

 These units are mainly dependent on larger customers for business
 SMEs do not have very good reach for marketing that restricts their
volumes and makes them too dependent on large units (in spite of SME
expertise in niches)
 SMEs are generally starved for funds and have to spend too much time for
collections of Accounts Receivable & external funding arrangements
 Banks are not very keen on supporting these units for working capital due
to uncertain business cycles and growth
 Too much time required to be spent with Govt. / Semi Govt. agencies

Challenges faced by the SME units
 Lack of adequate Management training and bandwidth amongst promoters
of such units resulting in lack of:
 Non-availability of Business plan leading to ad hoc decision making
 Lack of Business & Financial discipline
 Lack of Forward planning resulting in unforeseen situations
 Lack of cognizance to even appreciate that there is a better way to
manage the projects
 Lack of inadequate internal systems
 Inability to attract & retain highly trained manpower in this segment since
there is lot of poaching from larger units / MNCs in Pune
 Lack of succession plans and new generation not available for such causes
 Lack of awareness of modern Management practices and specifically

Project Management practices and methodologies amongst them

Challenges faced by the SME units-contd
 Inadequate attention to financial disciplines and cash flow control
(controllable & uncontrollable) affecting even the sheer existence of these
units. This leads to:
 Lack of available funds (perpetually caught up in this vicious cycle)
 Inability to pay competitive wages / salaries to trained professional in
working classes
 Lack of awareness of IPRs and legal issues (IPRs / Patents / Copyrights /

Registrations) in these units
 Need for training of the leadership and Promoters of such units
One can easily appreciate that such situations are very common for SME units
in and around Pune and in fact for all such units in India operating in such
sector of the Industry.

Risks Faced by SME Units
 Management Risks
 General Management skills / methods / training / attitudes
 Perpetuation of the units as an ongoing concern
 Financial Risks
 Lack of Financial Plans (Too many surprises & ad hoc decisions)
 Funds & Cash Flow planning
 Marketing Risks
 Reach & Net working
 Dependence on few customers
Technology Risks (Scope / Costs / Quality)
 Need for perpetual R&D
 Technology obsolescence
 Human Resource Risks
 Need for formally trained manpower
 Ability to pay competitive wages
 Support Structure & Associates 16
Who would want to look like this when one grows old??
Running SME Unit??

What would you want to look like when you grow old??
Managing SME Units is a challenge indeed!!
Learn to anticipate risks and deal with them

How do you run the business? Single-handed??
Look at the plight of Promoter of SME

Is this a normal way??
Risks faced by the SME Units in running normal operations
Promoter of SME units
21
Project Process Groups
Execution Risks all over

Effort
Planning
Closing
Control
Initiation
Project Start Project Complete

Time

Risk Management Process
Identification
Strategy Analysis
Risk Management
Control Planning
23
Period of greatest Risk Impact: Typical Project Environment
Max
Ability to Identify Amount of Stake
Risk / Opportunity
Cost of Change
Risk Ability to
Change easily
Min
Planning Definition Implementation Termination
Time
Period of greatest Risk Impact: Typical SME Environment
SME Organization has risk thr’ all over the phases & it is continues for ever! Think !
Max Ability to Amount of Stake

Change easily
Critical Period for Cost of Change

Risk Identification
Planning & Control
Risk
Risks for SME units tend to

be perpetual
Min
Planning Definition Implementation Ongoing-operation
Time

Risks faced by the SME units & Suggestions
 Management Team: Senior Management Team
 Vulnerable for slowing down or going under if the original owners are not active or have not
trained capable next generations
 This can be managed if right from the beginning you have planned for successions
 Lack of formalized Planning process: Emphasis of Planning right from early stages
 Lack / inadequacy of good planning practices right from the beginning
 This can be managed if right from the beginning you have planned for systems with requisite
discipline & rigor . This has to be taken seriously but at times not given adequate attention
 Costs / Finances / Funds Inadequate attention to financial disciplines and cash flow
control.
 Inadequate financial plans & control over Cash Flows (perpetually caught up in this vicious
cycle). This can be dangerous
 Inability to pay competitive wages / salaries to trained professional in working classes
 Meticulous attention to funds flow & cash flows & follow up on regular basis
 Lack of adequate marketing contacts & reach:

 Vulnerable due to complete dependence on single or very few customers

 Lack of formal training of the Team: Senior Management Team
 Vulnerable due to non-availability of trained staff is an important challenge / risk for the SME
segment and the risk is real
 This can be managed if right from the beginning you have planned for such exercises and
training programs for technology plus leadership skills as part of the on-going activity
 Lack of formalized focus on SMART & Efficient operational procedures / methods:

 Need for formal systems / Need for learning from others experience & planning for very
efficient ways and methods right from the beginning. This means this will have to continue
continuous reviews & improvements
 This can be managed if right from the beginning one has planned for right choice technology &
methods even if the initial project costs are higher
 Lack of awareness of IPRs and legal issues (IPRs / Patents / Copyrights / Registrations
in these units:
 In the era of globalization it is important issue to attend to. One tends to give secondary
treatment for this. But one can not neglect these issues for even in SME units
 Need for training of the leadership and Promoters of such units with right managemen
thinking / attitudes & practices
One can easily appreciate that such situations are very common for many SME
units in and around Pune.
However this may ably represent issues faced by many such units in India
operating in such sector of the Industry.
SMEs are becoming an important segment of our economy and one can no more
neglect such needs any more.
How ever the challenge is to decide where do we start and what is the way to
promote such thinking for this vital sector.
We all need to change our ways of thinking and think for the long term to protec
our own interest for all such units & start soon. SMEs definitely needs special
attention from everyone
How do you insure SME
business Performance?

Marketing is the name of the game!

To be fair in
selection
procedures all of
you must climb
the tree!
HR dilemma??

Over enthusiastic attitude of some young players
Some bloke wants to know if we have carried out a thorough risk assessment
properly!!

How do we improve the situation? Journey is not simple
• Capacity to Excellence • Capacity is basic potential as a given
Values & • Capacity is converted to Capability once you are

Excellence Passion willing to put in action your potential capacity and
develop ability
Action Control &

Competence Repeatability
• Capability is honed into Competence when you do
well over & over again in flawless way. You
develop a particular skill at reflex level and can
Speed & repeat the same in an effortless way
Capability Productivity
• Excellence emerges when you develop passion
Focus & for your activities and master the art of doing it
Capacity Attention and living your life with zest and vigor
• At times journey and the process are far more

Journey from Capacity to Excellence is
important than the destination
the Path one needs to travel all life for
actualizing Goals in Life of an individual
as well for an organization • Organization Development path would mean that
we move from Capacity to Excellence

Can we manage / balance the world for ourselves
• We need to work continuously to

ensure that we reach our goals and
happiness in our own way
• The task is not so simple and you

must make it a serious business for
yourself
34
Thank you!

Challenges & Risks Faced by SME Units: Girish Kelkar President PMI Pune Deccan India

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Challenges & Risks

faced by SME units

Nurture for excellence!

© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org

 Our Vice President – Shantanu Bhamare, PMP® is recipient of Volunteer Of

© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org

 To discuss the following issues from Project Management:

 Challenges for Risk Management for these units

 To seek discuss possible solutions

© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org

Anything that can go wrong –goes wrong!

© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org

 Pune is cultural capital of the western India and will continue to

© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org

 National Research Organizations

 Super Computing Centre - CDAC

 Indian Meteorological Department (IMD)

 Software Technology park - one of the largest in India

 A new upcoming Biotech Park

 Research centre for Sanskrit and Oriental Languages

© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org

 National Defence Academy of India

 Army School of Intelligence / Army School of Physical Training /

 Indian Air Force Centre for Western Command

 Many Defence Research Organizations

© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org

 More than 500 medium sized units(Average size 5 to 10 Mn USD)

 SME supply components mainly to Large Mfg units or MNCs as Tier 1 or

 SME in IT / ITES sectors also work as vendors / sub-vendors to larger IT

 Entrepreneurs are first generation entrepreneurs & do not have business

© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org 1

 The city is full of Manufacturing units-Large as well as Small & Medium

© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org 1

 There is population of over 100,000 qualified IT personnel (IT & ITES) in

 Pune’s IT Industry has been catching up with Mumbai in terms of

© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org 1

Units generally set up by technocrats using personal funds:

© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org

 Lack of awareness of modern Management practices and specifically

© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org

 Lack of awareness of IPRs and legal issues (IPRs / Patents / Copyrights /

 Need for training of the leadership and Promoters of such units

© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org

© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org

Managing SME Units is a challenge indeed!!

Learn to anticipate risks and deal with them

© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org

Look at the plight of Promoter of SME

Promoter of SME units

Execution Risks all over

Project Start Project Complete

© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org

Max Ability to Amount of Stake

Critical Period for Cost of Change

Risks for SME units tend to

© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org

 Lack of adequate marketing contacts & reach:

© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org

 Lack of formalized focus on SMART & Efficient operational procedures / methods:

© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org

© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org

© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org

© 2008 PMI Pune-Deccan India Chapter www.pmipunechapter.org