STUDY MATERIAL

SUBJECT : ENTREPRENEURSHIP
COURSE : BCOM
SEMESTER : VI
UNIT : IV
FACULTY : Dr.S.SIVAGNANAM

Project management- project – classification, identification, objective and life

cycle. Project formulation – need and elements- feasibility report- detailed
project report- project selection.
PROJECT MANAGEMENT:
INTRODUCTION

The very foundation of an enterprise is the project. Hence the success and failure of
an enterprise largely depends upon the project. In simple words, a project is an idea or plan
that is intended to be carried out. The dictionary meaning of a project is that it is a scheme,
design, a proposal of something intended or devised to be achieved.
Gillinger defines project “as the whole complex of activities involved in using
resources to gain benefits”

Meaning of Projects:

➢ A Project report or a Business plan is a written statement of what an entrepreneur

proposes to take up.
➢ It is a guide or course of action of what the entrepreneur hopes to achieve in his business
and how he is going to achieve it.
➢ It is a big road map.
➢ It Is an Operating document.

Hence even though the projects differ in their size, nature, objectives, time duration and
complexity, they have the following three basic attributes
a. A course of action
b. Specific Objectives
c. Definite time perspective
Concept:

To understand project management we must first understand what a project really is.
A project, therefore is not a physical objective, nor is it the end result-it has something to do
with the goings-on in between.

A project is, thus, initiated to achieve a mission-whatever the mission may be. A
project is completed as soon as the mission is fulfilled. The project lives between these two
cut-off points and therefore this times-pan is known as Project Life Cycle
 A project, according to the institute, is a “one-shot, time-limited, goal-directed,
major undertaking, requiring the commitment of varied skills and resources”. It also describes
a project as “a combination of human and non-human resources pooled together in a
temporary organization to achieve a specific purpose”.

Categories of Project:
The project will comprise and consequently its management will depend on the
category it belongs to. The location, type, technology, size, scope and speed are normally the
factors which determine the effort needed in executing a project. The below are the various
categories into which industrial projects may be fitted.

Project

National International

Non-Industrial Industrial

Non conventional / High Conventional

Low
R&D Technology Technology
Technology

Mega Major Medium Mini

Grass Root Expansion Modification

Normal Crash Disaster

Normal Projects:
In this category of projects adequate time is allowed for implementation of the
project. All the phases in a project are allowed to take the time they should normally take.
This type of project will require minimum capital cost and no sacrifice in terms of quality.

Crash Projects:
In this category of projects additional capital costs are incurred to gain time.
Maximum overlapping of phases is encouraged and compromises in terms of quality are also
not ruled out. Savings in time are normally achieved in procurement and construction where
time is bought from the vendors and contractors by paying extra money to them.
Disaster Projects:
Anything needed to gain time is allowed in these projects. Engineering is limited to
make them work. Quality short of failure level is accepted. No competitive bidding is
resorted to. Round-the –clock work is done at the construction site. Naturally, capital cost
will go up very high, but project time will get drastically reduced

Project Life Cycle Phases:

The attention that a particular project receives is again not uniformly distributed
throughout its life span, but varies from phase to phase. By and large, all projects have to pass
through the following five phases.
1. Conception Phase:
This is the phase during which the project idea germinates. The idea may first come to
the mind when one is seriously trying to overcome certain problems. The ideas need to be put
in black and white and given some shape before they can be considered and compared with
competitive ideas.
It is easy to appreciate that if this phase is avoided or truncated, the project will have
innate defects and may eventually become a liability for the investors. In this phase, however,
it is not supposed to be considered as to how the project will be implemented. This is
understandable since at the conception stage all pertinent data are not available and also the
real life scenario may undergo considerable change compared to what may have been
assumed initially.

2. Definition phase:
The definition phase of the project will develop the idea generated during the
conception phase and produce a document describing the project in sufficient details covering
all aspects necessary for the customer or financial institutions to make up their minds on the
project idea. The areas to be examined during this phase are as follows.
• Raw materials
• Plant size / Capacity
• Location and site
• Technology / process selection
• Project Layout
• Plant & Machinery
• Electrical and instrumentation works
• Civil Engineering works
• Utilities
• Manpower and Organisational Pattern
• Financial Analysis
• Implementation schedule
In most cases, it may be seen that the effort during this phase is concentrated
in protecting the project conceived during the conceptual stage. If this phase is not
done properly, it will increase the risk content of the project.

3. Planning and Organizing Phase:

This phase can effectively start only after definition phase but in practice it starts
much earlier, almost immediately after the conception phase. By and large, organizations,
during the phase, deal with the following, and in most cases take necessary action for
realization of the same.
 • Project infrastructure and enabling services
• System design and basic engineering package
• Organisation and manpower
• Schedules and budgets
• Licensing and governmental clearances
• Finance
• Systems and procedure
• Identification of project manager
• Design basis, general conditions for purchase and contracts
• Site preparation and investigations
• Construction resource and materials
• Work packaging
Thus this phase is involved with preparation for the project to take off smoothly. This
phase is often take as a part of the implementation phase since it does not limit itself to paper
work and thinking but many activities, including field work, are undertaken during this phase.

4. Implementation Phase:
This is a period of hectic activity for the project. It is during this period that
something starts growing in the field and people for the first time can see the project. As far
as the volume of work is concerned, 80-85% of project work is done in this phase only.
Naturally, therefore, people want to start this phase as early as they can, since the bulk of the
work in a project is done during this phase only, people will always want this phase to be
completed in as short a time as possible.
This phase, because of its peculiarities, has a high need for coordination and control.
People may take months and years in taking decision on the project, but once the project is
cleared and enters the implementation phase every one will like the time lost in the earlier
phases to be made up during this phase only.

5. Project Clean-up phase:

This is the transition phase in which the hardware built with the active involvement of
various agencies is physically handed over for production to a different agency who was not
so involved earlier. For project personnel this phase is basically a clean-up task. Drawing,
documents, files, operation and maintenance manuals are catalogued and handed over to the
customer.
Any change at the last minute for fulfillment of contractual obligations in respect of
performance has, therefore, to be completed during this phase to the satisfaction of the
customer. Project accounts are closed, materials reconciliation carried out, outstanding
payments made, and dues collected during this phase. The most important issue during this
phase is planning of the staff and workers involved in execution of the project.

Characteristics of the project:

The following are the special features of the project.
1. Objectives:
A project has a fixed set of objectives. Once the objectives have been achieved, the
project ceases to exist
2. Life span:
A project cannot continue endlessly. It has to come to an end. What represents the end
would normally be spelt put in the set of objectives.
3. Single Entity:
A project is one entity and is normally entrusted to one responsibility centre while the
participants in the project are many

4. Team Work:
A project calls for team work – the team again is constituted of members belonging to
different disciplines, organizations and even countries.

5. Life cycle:
A project has a life cycle reflected by growth, maturity and decay. It has, naturally a
learning component.

6. Uniqueness:
No two projects are exactly similar even if the plants are exactly identical or are
merely duplicated. The location, the infrastructure, the agencies and the people make each
project unique.

7. Change:
A project sees many changes throughout its life. While some of these changes may
not have any major impact, there can be some changes which will change the entire character
or course of the project.

8. Successive principle:
What is going to happen during the life cycle of a project is not fully known at any
stage. The details get finalized successively with the passage of time. More is known about a
project when it enters the construction phase than what was known, say, during the detailed
engineering phase.

9. Made to order:
A project is always made to the order of its customer. The customer stipulates various
requirements and put constraints within which the project must be executed.

10. Unity in diversity:

A project is a complex set of thousands of varieties. The varieties are in terms of
technology, equipment and materials, machinery and people, work culture and ethics. But
they remain inter-related and unless this is so they either do not belong to the project or will
never allow the project to be completed.

11. High Level of Sub-contracting:

A high percentage of the work in a project is done through contractors. The more the
complexity of the project, the more will be the extent of contracting. Normally around 80%
of the work in a project is dome through sub-contractors.

12. Risk and uncertainty:

Every project has rick and uncertainty associated with it. The degree of risk and
uncertainty will depend on how a project has passed through its various life-cycle phases. An
undefined project will have extremely high degree of risk and uncertainty. Risk and
uncertainty are not part and parcel of only R & D projects-there simply cannot be a project
without any rick and uncertainty.
SUMMARY
• Project is a well evolved work plan designed to achieve specific objectives
within a specified period of time. The project will comprise and consequently
its management will depend on the category it belongs to.
• A project is, thus, initiated to achieve a mission-whatever the mission may be.
A project is completed as soon as the mission is fulfilled. The project lives
between these two cut-off points and therefore this times-pan is known as
Project Life Cycle.
• All projects have to pass through various five phases: Conception Phase,
Definition Phase, Planning and Organizing Phase, Implementation Phase,
Project clean-up Phase
• Projects also have various characteristics such as Objectives, Life Span, Single
Entity, Team Work, Life Cycle, Uniqueness, Change, Successive Principle,
Made to Order, unity in diversity, High level of sub-contracting, Risk and
uncertainity
• It has been explained that project management is an unique discipline, where
individuals work in a group, hand-in-hand, for a common goal, keeping the
total perspective in focus all the time.
The emphasis in project management is on results and on the wholistic approach. Flexibility,
free communication, continous feedback and adaptation to changing requirements of work
and environment are special features of the project management approach.
Project formulation:
Need for project formulation.
1. Selection of appropriate technology
- right technology
- adaptability
- size according to market scope
- limited availability of skilled labour / capital
2. Influence of external economics:
- dependence on other industries
- ancillary industries
- communication network
3. Dearth ( Lack ) of Technically qualified personnel:
Non availability of required personnel.
4. Resource mobilization:
- Financial Resources
- Other resources
5. Knowledge about Government Regulations:
- Knowing the regulations fully

CONCEPT OF PROJECT FORMULATION:

Project formulation is the systematic development of a project idea for the eventual objective
of arriving at an investment decision.
1. It involves step by step investigation and development of project idea.
2. It provides control for restricting expenditure on project development.
3. In case of set backs, calling of the exercise possible
4. Team of experts needed to such as economists, market analysts, technologists of
engineers ( both civil & mechanical) and accounting experts.
Significance of Project formulation:
1. Helps in getting financial assistance from institutions.
2. Helps in resource planning and allocation.
3. Helps to get Govt. clearances.
4. It is a proof of bona-fide work of the entrepreneur with officials
Elements of project formulation:
1. Feasibility analysis
2. Techno – economic analysis
3. Project design & network analysis
4. Input analysis
5. Financial analysis
6. Social cost benefit analysis
7. Project appraisal.
PROJECT REPORT:
A Project Report is a written statement of what an entrepreneur proposes to take up.

CONTENTS OF A PROJECT REPORT:

1.General Information – on product profile and product details
1. Promoter – His educational qualifications, experience…
2. Location – of the project, lease or free hold
3. Land and Building – Land area, construction area, type of construction, cost of
construction, detailed plan, estimates…
4. Plant and Machinery – Details of machinery required, capacity, suppliers cost…
5. Production process – Description of production process, process chart, technical know
how…
6. Utilities – Water, Power, Steam, air…
7. Transport and communication
8. Raw Materials
9. Man Power- Both skilled and unskilled
10. Products- Product mix, estimated sales, distribution channels, product standard, input-
output ratio…
11. Market Local , National and International.
12. Requirement of Working Capital
13. Requirement of Funds
14. Cost of Production and Profitability
15. Break-Even Analysis
16. Schedule of Implementation.
Summary:
• Project is a well evolved work plan designed to achieve specific objectives within a
specified period of time. The process of establishing an enterprise starts with project
identification.
• Project identification is done by generating some project ideas. Each of these project
ideas are then, evaluated with the help of a tool called ‘SWOT’ analysis.
• The Project report is a blue-print of all those activities that an entrepreneur proposes
to engage in.
• The project report is required for purposes of obtaining funds from the financial
institutions and commercial banks.
• In order to complete the project within a stipulated period and cost, all the activities
involved in the project are scheduled in a sequential relationship called networking
or scheduling of activities.
 Suggested Questions:
Section- A
1. Project Identification is ----------------
2. --------------- are the three kinds of opportunities.
3. ---------------- is concerned with Collection, Compilation & analysis of economic data.
4. Feasibility analysis is the element of --------------
Section-B
1. What is project identification. Explain about the three kinds of opportunities.
2. What are the sources of information for project identification.
3. What are the concept of project formulation.
4. What is project report?
Section-C
1. Explain about the external and internal constraints of project evaluation.
2. Discuss about the contents of project report.

LESSON-2
Objectives:
• To learn about the specimen of project report
• To study about the planning commission guidelines of project report

Planning Commission’s Guidelines for formulating a project report:

Introduction:
In order to process investment proposals and arrive at investment decisions, the
Planning Commission of India has also issued some guidelines for preparing/formulating
realistic industrial projects.
The project formulation stage involves the identification of investment options by the
enterprise and in consultation with the Administrative Ministry, the Planning Commission
and other concerned authorities.

1. General Information:
The Feasibility report should include an analysis of the industry to which the project
belongs. It should deal with the past performance of the industry. The description of the type
of industry should also be given, i.e the priority of the industry, increase in production, role of
the public sector, allocation of investment of funds, choice of technique, etc. This should also
contain information about the enterprise submitting the feasibility report.

2. Preliminary analysis of alternatives:

This should contain present data on the gap between demand and supply for the
outputs which are to be produced, data on the capacity that would be available from the
projects that are in production or under implementation at the time the report is prepared, a
complete list of all existing plants, giving their capacity and level of production actually
attained, a list of all projects for which letters of intents/licenses have been issued and a list of
proposed projects. All options that are technically feasible should be considered at this
preliminary stage.

3. Project Description:
The feasibility should provide a brief description of the technology/process chosen for
the project. Information relevant to determining optimality of the locations chosen should
also be included. To assist in the assessment of the environmental effects of a project, every
feasibility report must present the information on specific points, i.e population, water, air,
land effects arising out of project’s pollution, other environmental discretions etc. The report
should contain a list of the operational requirements of the plant, water and power, personnel,
organizational structure envisaged, transport costs, activity-wise phasing of construction and
factors affecting it.

4. Marketing Plan:
It should contain the following items:
• Data on the marketing Plan
• Demand and prospective supply in each of the areas to be served.
• The method and data used for main estimates of domestic supply and selection of the
market areas should be presented. Estimates of the degree of price sensitivity should
be presented.
• It should contain an analysis of past trends in prices.

5. Capital Requirements and costs:

The estimates should be reasonably complete and properly estimated. Information on
all items of costs should be carefully collected and presented.

6. Operating Requirements and costs:

Operating costs are essentially those costs which are incurred after the
commencement of commercial production. Information about all items of operating cost
should be collected; operating costs relate to the cost of raw materials and intermediates, fuel,
utilities, labour, repair and maintenance, selling expenses and other expenses.

7. Financial Analysis:
The purpose of this analysis is to present some measures to assess the financial
possibility of the project. A proforma Balance Sheet for the project data should be presented.
Foreign exchange requirements should be cleared by the Department of Economic Affairs.
The feasibility report should take into account income-tax rebates for priority industries,
incentives for backward areas, accelerated depreciation, etc. The sensitivity analysis should
be presented. The report must analyze the sensitivity of the rate of return of change in the
level and pattern of product prices.

8. Economic Analysis
Social profitability analysis needs some adjustment in the data relating to the costs
and returns to the enterprise. One important type of investment involves a correction in input
and costs, to reflect the true value of foreign exchange, labour and capital. The enterprise
should try to assess the impact of its operations on foreign trade. Indirect costs and benefits
should be included in the report. If they cannot be quantified, they should be analysed and
their importance emphasized.

9. Miscellaneous Aspects:
The preceding areas are deemed appropriate to almost every new small enterprise.
Nowwithstanding, depending upon the size of the operation and peculiarities of a particular
project, other items may be considered important to be applied out in the project report. To
mention, probable use of minicomputers or other electronic data processing services, cash
flow statements, method of accounting etc. may be of great use in some small enterprises.
Specimen of a project report:
The following illustrative Project Report of a manufacturing unit, it will help you
understand how to prepare a Project Report or Business Plan.

Project Profile for Manufacturing Unit……………………

A. PRODUCT DESCRIPTION

B. PRODUCTION AND GENERAL EVALUATION OF PROSPECTS:

C. MARKET ASPECTS
• Users
• Sales Channels & Methods
• Geographical Extent of Market
• Competitive Situation
a) Domestic Market
b) Export Market
• Market needed for plant described:

D. PRODUCTION REQUIREMENTS Rs. ****

Salient Features:
• Annual Capacity
• Capital Requirements
Land & Buildings on rent (Mention value, if owned)
Equipment, furniture and fittings
Working Capital
• Total Capital which the entrepreneur would need for the whole project
provided he uses agencies planned by the government for financial
accommodation as discussed in the book
a) Own
b) Borrowings
• Expected net profit per annum

E. CAPITAL REQUIRMENTS:
• Fixed assets & working capital
o Land (Sq metres )
Buildings (Sq metres) on rent at Rs…… per annum Rs.***
o Equipments:
I. Production Equipment (List down in an appendix, giving values
ect of each machine separately)
II. Other tools & Equipment
III. Furniture and fittings

o Working Capital
 (This would be calculated keeping in view the periods in which capital on an average
in various forms, i.e manufactured goods, semi-manufactured goods, raw material
etc., would remain locked up.)

Total

• Raw Material & Allied supplies (Annual)

Description Qty Rate Rs Annual
Requirements
1. Power, Fuel & Water
2. Maintenance & Allied Supplies
3. Other Supplies

Total
• Manpower (Annual)
Description No of rate (Rs) / Month Annual cost Rs
1. Manager
2. Foreman
3. Supervisors
4. Skilled Workers
5. Semi-skilled Workers
6. Unskilled workers
7. Office staff
8. Others
Total
• Other Costs (annual)
o Depreciation on equipment, furniture & fittings per annum
o Interest on capital (Fixed & working per annum on average)
o Administrative costs
o Sales cost (Including sales commission, Advertisement etc)
o Provision for discount, bad debts and miscellaneous contingencies
o Training costs

F. TOTAL ANNUAL COSTS, SALES REVENUE AND NET PROFITS

• Annual costs (a)
o Rent for land & Buildings
o Raw material & Allied Supplies
o Manpower
o Other Costs
Total
• Annual sales revenue (b)
• Expected Annual net profit (b-a)
• % profit on own capital
• % profit on Total annual sales Turnover
• % on Total Investment
SUGGESTED QUESTIONS:
Section-A
1. Preliminary analysis of alternatives should contain present data on the gap between----
----& ------------.
2. Analysis of past trends in prices should included in -------- plan.
 3. Social profitability analysis needs data relating to ----------- of the enterprise
4. Financial analysis is done to measure ------------
Section-B
1. Explain in brief about Preliminary, financial and economic analysis.
2. Explain about project description
3. Brief about the marketing plan.
Section-C
1. Explain about the specimen of project report
2. Discuss about the planning commission guidelines of project report