Unit 4 - EDPM

Project Management
 Unit 4 Topics
Developing a business plan/project report

Identification of Business Opportunity – Market survey and

opportunity identification
Preparation of Feasibility Report – market, Financial, Technical
feasibility studies
Social cost benefit Analysis – Project Formulation – Common
Errors in Project Formulation
Business plan and project report preparation – Ownership
Structures – Sole Proprietorship, Partnership, Company
 Reference Books
• Chandra, Prasanna. (2007). Projects. (6 ed.), New Delhi : Tata
th

McGraw Hill

• K. Nagarajan. (2009). Project Management, (4th ed.) New Delhi

: New Age Publishers
Ideas Start With Solving Problems
• Any Problems are Big Opportunities.

• No Problems, No Solutions, & No Reasons

for Firms to Exist.

• No One Pays You to Solve a Non-exist

Problem (Vinod Khosla, Sun
Microsystems)
Example (1): Rise of Levi’s
• Problem:
• Working Clothes for Mining Workers do Not Last

• Solution:
• First Pair of Jeans
 Ideas or opportunities

■ There are many different ways a firm can innovate; it helps define the innovation space according
to what, who, how, and where aspects
⚪ Change what the firm offers, in line with a traditional view of new product or service innovation
■ IPOD
⚪ Changing who the customer is represents another route that involves innovations related to customers,
experiences, and value capture
■ Google, IKEA, Home depot DIY
⚪ Changing how you sell to customers pertains to the processes, organizations, and supply chains that a
firm uses
■ Dell, Progressive insurance
⚪ Changing where to sell to customers comprises presence, networking, and brand innovations
■ Starbuck at airport, Otis elevator

6
Innovation Radar

Changing Brand W
where to sell
Offering HA Changing
E Leverage Develop what the firm
to customers R the brand T
E new offers
H into new products or Platform
W Networking markets Use
Interconnections services
interchangeable
as a strength
designs

Presence Solutions
Change where Provide a total
products are sold solution

Organization Value capture

Change firm Change how
structure customers pay

Experience
Supply chain Change Changing
Change supply customer
Changing who the
how to sell to
chain Processes Customer interactions customer is

HO
H

Change Change
OW

customers

W
operating customers to
processes target

Adapted from Sawhney, M., Wolcott, R.C., & Arroniz, I. (2006),

“The 12 Different Ways for Companies to Innovate,” MIT
Sloan Management Review, Vol. 47 (3), p. 75.

7
Innovation Radar Exercise: Take a Few
Minutes and Develop Innovation Ideas
1. Offering: Develop new products or new services (IPOD)
2. Platform: Design modular platforms and strategic control points
(Nissan)
3. Solution: Solve end-to-end customer problems (John Deere)
4. Customer: Discover unmet customer needs or underserved
segments (DIY)
5. Experience: Rethink how customers interface with you (IKEA)
6. Value Capture: Redefine how you get paid (Google)
7. Processes: Innovate in your core operating processes
(Progressive)
8. Organization: Change form, function or scope (IBM, Arrow)
9. Supply chain: Rethink sources (Dell)
10. Presence: Innovative points of presences (Starbucks at airport)
11. Networking: Integrated offering, leverage others (Otis elevator)
12. Brand: Leverage the brand into new domains (Virgin)

8
8
 Projects – An overview
o Projects are part of
o Every person
o Building a house
o Marriage of son/daughter
o Every organisation
o Setting up a new factory, modernisation/expansion
o New product development
o Every nation
o Building of highways, metros, railways, dams, thermal power
plants
o Hydroelectric plants, airports…..

Source : K. Nagarajan. (2009). Project Management, pp. 1-2

 Project e.g.

• Projects are not new to the Earth

• Pyramids of Egypt (2650 BC)

• Construction of Taj Mahal (1626-1648

AD)
• 20,000 persons for 22 years!!!!!!!

Source : K. Nagarajan. (2009). Project Management, p. 1.

 • Project - Definitions
– “a temporary endeavour undertaken to create a
unique product or service” Project Management
Institute, USA

– “a non-routine, non-repetitive, one-off

undertaking normally with discrete time, financial
and technical performance goals” Harison

INTRODUCTION : – “a system involving the co-ordination of a number

What is a Project? of separate department entities throughout the
organisation and which must be completed within
the prescribed schedules and time constraints”
Project Management Institute, USA

o Project Management
o Separate branch of study related to management
of projects

Source : K. Nagarajan. (2009). Project Management, p. 1. 11

 INTRODUCTION
The Triple Constraint of Projects

• On Time, Budget, Quality = Required Scope

Time

Cost Quality

• Integration
• Trade – Off’s

12
INTRODUCTION

Project Life Cycle

Concept Planning Execution/Control Closin

g
Definition | Analysis |Design|Build|Test|Accept| Implement|
Operation 20 60
% %
5% 15
%

Percentages and graph refer to the amount of effort (people)

13
 Project – Stages/Phases
o Project Planning
o Investment strategy; generation & preliminary screening of
project ideas
o Project Analysis
o Feasibility studies
o Project Selection
o Discounting and non-discounting techniques (NPV; ARR; ..)
o Project Financing
o Equity and debt
o Project Implementation
o Project & Engg designs; Negotiation & Contracting; Construction;
training; commissioning
o Project Review (Controlling & monitoring)
o Compare actual with projected performance

Source : Prasanna Chandra. (2006). Projects, p. 1.6

 Classification of Projects
o Based on type of activity
o Industrial and non-industrial projects
o Location of the project
o National and international projects
o Project completion time
o Normal and crash projects
o Ownership
o Public sector; private sector and joint sector projects
o Size or amount of investment
o Small, medium and large sized projects
o Based on Need
o New
o Expansion, modernisation and replacement project
o Diversification, forward and backward integration project
Source : K. Nagarajan. (2009). Project Management, pp.7-15.
 Investment strategy; generation &
Project Planning preliminary screening of project ideas

Project Analysis Feasibility studies

Project –
Discounting and non-discounting
Project Selection techniques (NPV; ARR; ..)

Stages/Phases Project Financing Equity and debt

Project & Engg designs; Negotiation

Project Implementation & Contracting; Construction; training;
commissioning

Project Review Compare actual with projected

performance
(Controlling & monitoring)
 Project Planning
o Project Planning phase

o Assesses
o Whether the project is worthwhile to justify a
feasibility study
o Identifying critical factors for viability of the project,
which needs in-depth investigation

o Involves
o Generation of project ideas
o Preliminary Screening

Source: Prasanna Chandra. (2006). Projects.

 Project Analysis -
Feasibility Studies
o In-depth study and assessment of various factors
in project
o Market and Demand Analysis
o Technical Analysis
o Financial Analysis
o Social Cost Benefit Analysis
o Environment Impact analysis (EIA)

Source: Prasanna Chandra. (2006). Projects.

 Market and Demand Analysis
o Meaning
o Estimate potential size of the market
o Get an idea about the market share that is likely to be
captured

o Steps
o Situational analysis and specification of objectives
o Collection of secondary information
o Conduct market survey
o Characterisation of the market
o Demand forecasting
o Market planning

Source: Prasanna Chandra. (2006). Projects.

 Market and Demand Analysis
• Situational analysis and specification of objectives
– Situational analysis
• Informally talk to customers, competitors, middlemen, etc.
– Specification of objectives
• Objectives of market and demand analysis
• Can be in the form of questions

• Collection of secondary information

– Sources
• Census, National sample survey, planning commission reports, Economic survey, India year book, statistical
year book, Annual survey of industries, RBI bulletins, Stock exchange directory

• Industry specific secondary information

• Evaluation of secondary information
Source: Prasanna Chandra. (2006). Projects.
 Conduct market survey
o Primary information
o Sample survey or at times census survey
o Information sought are
o Demand
o Price and income elasticities
o Unsatisfied needs
o Buying behaviour
o Steps in a sample survey
o Define target population
o Sampling procedure
o Develop survey tool – questionnaire
o Data collection
o Analysis and interpretation
Source: Prasanna Chandra. (2006). Projects.
 Characterisation of the market

o Describing the characteristics of the market based on information

from secondary and primary sources.

o Effective demand in the past and present

o Breakdown of demand
o Price
o Distribution
o Consumers
o Govt. Policy
o Supply and competition

Source: Prasanna Chandra. (2006). Projects.

 o Demand forecasting
o To estimate future demand

o Methods
Demand o Qualitative Methods
o Jury of Executive ; Delphi Technique
forecasting o Time Series Projection methods
o Trend Projection; Exponential
Smoothing; Moving average
methods

Source: Prasanna Chandra. (2006). Projects.

 Market planning
o Current marketing situation
o Opportunity and Issue Analysis
o Objectives
o Marketing strategy
o Action programme

Source: Prasanna Chandra. (2006). Projects.

 Technical Analysis
o Analysis of Engineering and Technical aspects
o Consists of
o Manufacturing Process/Technology
o Technical Arrangements
o Material inputs and utilities
o Product Mix
o Plant Capacity
o Location and site
o Machineries and Equipment
o Structure and civil works
o Environmental Aspects
o Project charts and layouts

Source: Prasanna Chandra. (2006). Projects.

 Financial Analysis
o Cost of project – land; Building; Technology
o Means of Financing
o Estimates of Sales and Production
o Cost of production
o Working capital and its financing
o Profitability Projections
o Projected cashflow statements
o Projected Balance sheets

Source: Prasanna Chandra. (2006). Projects.

 Project Analysis -
Feasibility Studies
o In-depth study and assessment of various factors in
project
o Market and Demand Analysis
o Technical Analysis
o Financial Analysis
o Social Cost Benefit Analysis
o Environment Impact analysis (EIA)

Source: Prasanna Chandra. (2006). Projects.

Social Cost Benefit Analysis (SCBA)

Source: Prasanna Chandra. (2006). Projects.

 Commercial Cost benefit analysis
Commercial
Cost benefit
analysis

Total cost of Expected future benefit

the project from the project

• Benefit > Cost is desirable here.

• So it is nothing but a profitability analysis.

• But what will be the costs and/or the benefits that a society may have to
bear and/or get from the proposed project are not considered here.
 For example:
• Suppose, a manufacturer produces cigarettes and sell it Rs.40 a packet, and
another manufacturer produces soaps and sell it Rs.20 a bar.

Now, if we think about the impact of soaps & cigarettes on

the society, the questions may be –
▫ Does the price of cigarettes take account of the smokers’ higher
probability of heart disease or cancer?

▫ Does the price of soap take note of the benefits from the use of soap, e.g.,
reduced risk of spreading diseases?

Obviously, a commercial entrepreneur can’t give a clear answer to these

questions.
 What is Social Cost Benefit Analysis ?

• So, to reflect the real value of a project to society, we must consider the impact
of the project on society.
Impact

Positive Negative
(Social Benefit) (Social Cost)

Thus ,when we evaluate a project from the view point of the society (or
economy) as a whole, it is called Social Cost Benefit Analysis (SCBA) Analysis.
 Significances of SCBA

• CBA is unable to reflect social values. Hence SCBA has been emerged with some interesting
significances. These significances also make the SCBA different from the CBA.

● Market Imperfections
● Market prices, the basis for CBA, do not reflect the social values under imperfect market competition.
● Externalities
● A project may have beneficial or harmful external effects that are considered in SCBA, not in CBA
● Taxes & Subsidies
● From the social point of view, taxes & subsidies are nothing but transfer payments. But in CBA, taxes
& subsidies are treated as monetary costs and benefits respectively.
● Concern for Savings
● In SCBA, the division between savings & consumption is relevant wherein higher valuation is placed
on savings. But in CBA such division is irrelevant.
● Concern for Redistribution
● In SCBA, the distribution of benefits is very much concerning issue where commercial private firm
does not bother about it.
● Merit Wants
● Merit wants are important from the social point of view and therefore, SCBA considers these wants.
 Objectives of SCBA

The main focus of Social Cost Benefit Analysis is to determine:

1. Economic benefits of the project in terms of shadow prices;

2 The impact of the project on the level of savings and investments in the
society;
3. The impact of the project on the distribution of income in the society;
4. The contribution of the project towards the fulfillment of certain merit
wants (self- sufficiency, employment etc).
 Approaches for SCBA
o Two approaches developed in 1960s and 1970s

• A. UNIDO Approach:
o This approach is mainly based on the publication of UNIDO
(United Nation Industrial Development Organization)
• named Guide to Practical Project Appraisal in 1978.

• B. L-M Approach:
o I.M.D Little & J.A.Mirlees have developed this approach for
• analysis of Social Cost-Benefit in Manual of Industrial Project Analysis in Developing Countries
and Project Appraisal & Planning for Developing Countries.

Source: Prasanna Chandra. (2006). Projects.

 UNIDO Approach
United Nations; for developing countries
Five Stages
1. Calculation of financial profitability of the project at market price
2. Obtain the net benefit of the project at shadow prices
3. Adjust for the impact of the project on savings and investment
4. Adjust for the impact of the project on income distribution
5. Adjust for the impact of the project on merit goods and demerit
goods whose social values differ from their economic values

Source: Prasanna Chandra. (2006). Projects.

 Shadow Prices
• Shadow Prices reflect the real value of a resource
(input or output) to society.

• Market price does not reflect the real value!!!

• Example: A project of power station may increase the production of electricity

which contributes to one of the socio-economic objectives of the country.

• For instance, if the pdn cost of 1 ton of a fertiliser is Rs.2000,though it is supplied to the
farmers at a subsidised price of Rs. 1500

Source: Prasanna Chandra. (2006). Projects.

• If there is no difference between the economic value of inputs and outputs
and the social value of those, the UNIDO approach for project evaluation
ends at stage 4.

• There are some goods (merit goods), social value of which exceed the
economic value (e.g. oil, creation of employment etc.) and also there are
some goods (demerits goods), social value of which is less than their
economic value (e.g., cigarette, alcohol, high-grade cosmetics etc.)

• Adjustment to the net present value of stage 4 is required if there is any

difference between the social and economic value.

Source: Prasanna Chandra. (2006). Projects.

 Project Analysis -
Feasibility Studies
o In-depth study and assessment of various factors in
project
o Market and Demand Analysis
o Technical Analysis
o Financial Analysis
o Social Cost Benefit Analysis
o Environment Impact analysis (EIA)

Source: Prasanna Chandra. (2006). Projects.

 Environmental Impact Assessment (EIA) is a
process of evaluating the likely environmental
impacts of a proposed project or
Environmental development, taking into account inter-
related socio-economic, cultural and human-
Impact health impacts, both beneficial and adverse.
Assessment
(EIA) UNEP (UN Environment Programme) defines
Environmental Impact Assessment (EIA) as a
tool used to identify the environmental,
social and economic impacts of a project
prior to decision-making.
Source: Prasanna Chandra. (2006). Projects.

It aims to predict environmental impacts at

an early stage in project planning and
design, find ways and means to reduce
Environmental adverse impacts, shape projects to suit the
local environment and present the
Impact predictions and options to decision-makers.
Assessment
(EIA) Environment Impact Assessment in India is
statutorily backed by the Environment
Protection Act, 1986 which contains various
provisions on EIA methodology and process.
 Screening
• The project plan is screened for scale of investment, location and
type of development and if the project needs statutory clearance.

Scoping
• The project’s potential impacts, zone of impacts, mitigation
possibilities and need for monitoring.

EIA process Public hearing

• On completion of the EIA report, public and environmental groups
living close to project site may be informed and consulted.

Appraisal
• Risk assessment, mitigation, assessment of alternatives
 Project – Stages/Phases
o Project Planning
o Investment strategy; generation & preliminary screening of
project ideas
o Project Analysis
o Feasibility studies
o Project Selection
o Discounting and non-discounting techniques (NPV; ARR; ..)
o Project Financing
o Equity and debt
o Project Implementation
o Project & Engg designs; Negotiation & Contracting; Construction;
training; commissioning
o Project Review (Controlling & monitoring)
o Compare actual with projected performance

Source : Prasanna Chandra. (2006). Projects, p. 1.6

 Project evaluation and selection

o Three basic steps

1. Estimate project cash flows

2. Establish the cost of capital (hurdle rate)
3. Apply a suitable appraisal criterion
 Project cash flows
o Cash outflows financial costs
o Cash inflows financial benefits

o Project cash flows -> principles

o Incremental principle
o Long term funds principle
o Exclusion of financing costs principle
o Post - tax principle
Project Selection – Appraisal Criteria
o Discounting Technique
o Net Present Value
o Benefit Cost Ratio
o Internal Rate of Return (IRR)

o Non-discounting Technique
o Pay back period
o Accounting Rate of Return (ARR)
 Common Errors in Project Formulation
• The entrepreneurs often make errors while formulating project report. The common errors are as
follows:

• (1) Product selection:

– selecting the wrong product for their enterprises.

• (2) Capacity utilization estimates:

– Some entrepreneurs make over-optimistic estimates of capacity utilization.

• (3) Market study:

– Most of the entrepreneurs do not study their market before preparing a project report or business plan. As a
result, their business plan cannot be successful.

• (4) Technology selection:

– Entrepreneurs sometimes plan for technology not possible to set up within limited financial resources.

• (5) Location selection:

– Entrepreneurs often make two types, of errors while selecting a location; a) they are completely influenced by
the Government offer of financial incentives and concessions; b) they sometimes select a location merely
because it is near to their home.

• (6) Selection of ownership form:

– Many entrepreneurs fail merely because the ownership form of enterprise is not suitable, i.e. they sometimes
select a partnership project where sole-proprietorship is suitable.
 Unit 4 Topics
Developing a business plan/project report

Identification of Business Opportunity – Market survey and

opportunity identification
Preparation of Feasibility Report – market, Financial, Technical
feasibility studies
Social cost benefit Analysis – Project Formulation – Common
Errors in Project Formulation
Business plan and project report preparation – Ownership
Structures – Sole Proprietorship, Partnership, Company
 What is a Business Plan?

A Business Plan is a written document that defines the goals of your

business and describes how you will attain those goals.

A Business Plan is worth your considerable investment of time, effort,

and energy.

A Business Plan sets objectives, defines budgets, engages partners, and

anticipates problems before they occur.

49
10 Reasons Why You Need a Strong Business Plan

1. To attract investors.
2. To see if your business ideas will work.
3. To outline each area of the business.
4. To set up milestones.
5. To learn about the market.
6. To secure additional funding or loans.
7. To determine your financial needs.
8. To attract top-level people.
9. To monitor your business.
10. To devise contingency plans. 50
 How Detailed Should Your Plan Be?

▪ Business plans differ widely in their length, appearance, content, and the emphasis
placed on different aspects of the business.

▪ Depending on your business and your intended use, you may need a very different
type of Business Plan:
– Mini-plan: Less emphasis on critical details. Used to test your assumptions, concept, and
measure the interest of potential investors.
– Working Plan: Almost total emphasis on details. Used continuously to review business operations
and progress.
– Presentation Plan: Emphasis on marketability of the business concept. Used to give information
about the business to bankers, venture capitalists, and other external resources.

51
 Assembling a Business Plan

Every Business Plan should include some essential components:

– Overview of the Business: Describes the business, including its products and
services.
– The Marketing Plan: Describes the target market for your product and explains
how you will reach that market.
– The Financial Management Plan: Details the costs associated with operating
your business and explains how you will pay for those costs, including the
amount of financing you may need.
– The Operations and Management Plan: Describes how you will manage the core
processes of your business, including use of human resources.

52
 Seven Common Parts of a Good Business Plan

▪ Business plans must help investors understand and gain confidence on

how you will meet your customers’ needs.

▪ Seven common parts of a good Business Plan are:

1. Executive Summary
2. Business Concept
3. Market Analysis
4. Management Team
5. Marketing Plan
6. Financial Plan
7. Operations and Management Plan
53
 Part 1: Executive Summary

▪ The Executive Summary of a Business Plan is a 3-5 page introduction to your Business

▪
Plan.
The Executive Summary is critical, because many individuals (including venture
capitalists) only read the summary.

▪ The Executive Summary section includes:

– A first paragraph that introduces your business.
• Your business name and location.
• A brief explanation of customer needs and your products or services.
• The ways that the product or service meets or exceeds the customer needs.
• An introduction of the team that will execute the Business Plan.
– Subsequent paragraphs that provide key details about your business, including projected sales and
profits, unit sales, profitability, and keys to success.
– Visuals that help the reader see important information, including highlight charts, market share 54
projections, and customer demand charts.
 Part 2: Business Concept

▪ The business concept shows evidence that a product or service is viable

and capable of fulfilling an organisation's particular needs.

▪ The Business Concept section:

– Articulates the vision of the company, how you plan to meet the unique needs of
your customer, and how you plan to make money doing that.
– Discusses feasibility studies that you have conducted for your products.
– Discusses diagnostics sessions you had with prospective customers for your
services.
– Captures and highlights the value proposition in your product or service offerings.

55
 Part 3: Market Analysis

▪ AyourMarket Analysis defines the target market so that you can position
business to get its share of sales.

▪ A Market Analysis section:

– Defines your market.
– Segments your customers.
– Projects your market share.
– Positions your products and services.
– Discusses pricing and promotions.
– Identifies communication, sales, and distribution channels.
56
 Part 4: Management Team

The Management Team section outlines:

– Organizational Structure: Highlights the hierarchy and outlines responsibilities and decision-making
powers.
– Management Team: Highlights the track record of the company’s managers. You may also offer
details about key employees including qualifications, experiences, or outstanding skills, which could
add a competitive edge to the image of the business.
– Working Structure: Highlights how your management team will operate within your defined
organizational structure.
– Expertise: Highlights the business expertise of your management and senior team. You may also
include special knowledge of budget control, personnel management, public relations, and strategic
planning.
– Skills Gap: Highlights plans to improve your company’s overall skills or expertise. In this section, you
should discuss opportunities and plans to acquire new information and knowledge that will add
value.
– Personnel Plan: Highlights current and future staffing requirements and related costs. 57
 Part 5: Marketing Plan

▪ The Marketing Plan section details what you propose to accomplish,

▪ The Marketing Plan section:

and is critical in obtaining funding to pursue new initiatives.

– Explains (from an internal perspective) the impacts and results of past marketing
decisions.
– Explains the external market in which the business is competing.
– Sets goals to direct future marketing efforts.
– Sets clear, realistic, and measurable targets.
– Includes deadlines for meeting those targets.
– Provides a budget for all marketing activities.
– Specifies accountability and measures for all activities.
58
 Part 6: Financial Plan (Slide 1 of 2)

▪ The Financial Plan translates your company's goals into specific financial targets.

▪ The Financial Plan section:

– Clearly defines what a successful outcome entails. The plan isn't merely a prediction; it implies a
commitment to making the targeted results happen and establishes milestones for gauging
progress.
– Provides you with a vital feedback-and-control tool. Variances from projections provide early
warnings of problems. When variances occur, the plan can provide a framework for determining
the financial impact and the effects of various corrective actions.
– Anticipate problems. If rapid growth creates a cash shortage due to investment in receivables
and inventory, the forecast should show this. If next year's projections depend on certain
milestones this year, the assumptions should spell this out.

59
 Part 6: Financial Plan (Slide 2 of 2)

▪ The Financial Plan is the most essential part of your Business Plan. It

▪ Some elements of the Financial Plan include:

shows investors the timeframes you have scheduled to make profits.

– Important Assumptions
– Key Financial Indicators
– Break-even Analysis
– Projected Profit and Loss
– Projected Cash Flow
– Projected Balance Sheet
– Business Ratios
– Long-term Plan
60
 Different Financial Planning
Options (Slide 1 of 2)
▪ month
Short-term Forecast: Projects either the current year or a rolling 12-
period by month. This type of forecast should be updated at
least monthly and become the main planning and monitoring vehicle.

▪ budget
Budget: Translates goals into detailed actions and interim targets. A
should provide details, such as specific staffing plans and line-
item expenditures.
– The size of a company may determine whether the same model used to
prepare the 12-month forecast can be appropriate for budgeting.
– In any case, unlike the 12-month forecast, a budget should generally be frozen
at the time they are approved.
61
 Different Financial Planning Options (Slide 2 of 2)

▪ Strategic Forecast: Incorporates the strategic goals of the company into the
projections. For startup companies, the initial Business Plan should include a month-
by-month projection for the first year, followed by annual projections for a
minimum of three years.

▪ Cash Forecast: Breaks down the budget and 12-month forecast into more detail.
The focus of these forecasts is on cash flow, rather than accounting profit, and
periods may be as short as a week in order to capture fluctuations.

62
 Part 7: Operating plan

▪ The operating plan provides an

– Production process
– overview of the company’s physical requirements, such as office space,
machinery, labour, supplies, and inventory.
– Supply chain management
– Quality, maintenance

Building a Business Plan

63
Project report content
1. Cover page Project summary
2. Background (and needs): Might be two chapters!
3. Proposal
4. Objectives
5. Results
6. Outputs
7. Activities
8. Budget
9. Timetable and workplan

64
 Business plan assignment

▪ Group Project
▪ Contents
1. Executive Summary
2. Business Concept
3. Market Analysis
4. Management Team
5. Marketing Plan
6. Financial Plan
7. Operations and Management Plan
 Forms of Business Organisation
• Sole Proprietorship

• Partnership

• Corporation

• LLP (Limited Liability Partnership)

Source : Ross., Westerfield and Jordan. (2008). Fundamentals of Corporate Finance, New Delhi : Tata McGraw-Hill
1.7
Sole Proprietorship
• Advantages • Disadvantages
– Easiest to start – Unlimited liability
– Least regulated – Limited to life of owner
– Single owner keeps all – Equity capital limited to
the profits owner’s personal wealth
– Taxed once as personal – Difficult to sell
income ownership interest
1.8
Partnership
• Advantages
– Two or more owners
– More capital available
– Relatively easy to start
– Income taxed once as
personal income
• Disadvantages
– Unlimited liability
– Partnership dissolves
when one partner dies
or wishes to sell
– Difficult to transfer
ownership
 Corporation
• A business created as a distinct legal entity
composed of one or more individuals or entities.
• Borrow money and own property
• Can sue or be sued
• Can enter into contracts
• Large and medium sized business are organised as
corporations.
• Reliance, Infosys, ITC, ABB, Unilever, Sony

• Corporation is owned by stockholders who own

shares in the business

Source : Ross., Westerfield and Jordan. (2008). Fundamentals of Corporate Finance, New Delhi : Tata McGraw-Hill, pp.4-5
Brealey, Myers, Allen and Mohanty. (2007). Principles of Corporate Finance, 8th ed., new Delhi : Tata McGraw-Hill, pp. 5-6
1.9
Corporation
• Advantages • Disadvantages
– Limited liability – Separation of
– Unlimited life ownership and
– Separation of management
ownership and – Double taxation
management (Corporations pay tax on
their profits, and in addition
– Transfer of ownership is pay dividend distribution tax
easy on any dividend they pay to
– Easier to raise capital the shareholders)
 Classification of Entities

Private Public One Person Limited Liability

Company Company Company Partnership

Minimum Members 2 7 1 2

Minimum Directors/Partners 2 3 1 2

No Minimum No Minimum No Minimum No Minimum

Minimum Capital/ Contribution
prescribed prescribed prescribed prescribed

Maximum Capital/ Contribution No Limit No Limit No Limit No Limit

71
 Advantages

Private Public One Person Limited Liability

Company Company Company Partnership

Continuity of existence Liquidity to shareholders. Suitable for small business Limited Liability of the
units as it offers Corporate partners.
form of sole proprietorship.

Less number of members Easy to raise capital Corporate form of

Minimal or No compliances.
makes it easy to manage. from public. partnership.

Many compliance related No restrictions on number of Limited liability of the Minimal compliances
exemptions available members. shareholders required.

Only four board meetings Company’s shares can be

___ Greater flexibility.
in a year required listed on Stock exchange.

Limited liability of the

Limited liability of the ___
shareholders Tax Benefits.
shareholders

72
Corporate form of Organisations – Across the
world