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A new venture in any organization still in its formative stages, Basically new ventures are founded by individuals intending to change the environment of a given industry by the introduction of either a new product or a new production process.
3.
1. Uniqueness
A new venture's range of uniqueness can be considerable, extending from fairly routine to highly non-routine. What separates the routine from the non-routine ventures the amount of innovation required during pre-start-up.
2.
Investment :
The capital investment required to start a new venture can vary considerably. In some industries less than Rs. 1,00,000 may be required, whereas in other industries crores of rupees are necessary. Moreover, in some industries only large-scale startups are feasible. For example, in the publishing industry one can start a small venture that can remain small or grow into a larger venture. By contrast, an entrepreneur attempting to break into the airline industry will need a considerable up-front investment. Another finance-related critical issue is the extent and timing of funds needed to move through
the venture process. To determine the amount of needed investment, entrepreneurs must answer questions such as these : (a) Will industry growth be sufficient to maintain break even sales to cover a high fixed-cost structure during the start-up period? 3.
Sales Growth
The growth of sales through the start-up phase is another critical factor. Key questions are as follows : (a) What is the growth pattern anticipated for new venture sales and profits? (b) Are sales and profits expected to grow slowly or level off shortly after start-up? In answering these questions, it is important to remember that most ventures fit into one of the three following classifications.
Lifestyle Ventures appear to have independence, autonomy, and control as their primary
driving forces. Neither large sales nor profits are deemed important beyond providing a sufficient and comfortable living for the entrepreneur. In Small Profitable Ventures, financial consideration plays a major role. Additionally, autonomy and control are important in the sense that the entrepreneur does not want venture sales (and employment) to become so large that he or she must relinquish equity or an ownership position and thus give up control over cash flow and profits, which, it is hoped, will be substantial. In High-growth Ventures, significant sales and profits growth are expected to the extent that it may be possible to attract venturer capital money and funds raised through public or private placements.
4. Product Availability
Essential to the success of any venture is product availability, the availability of a salable good or service at the time of venture opens its door. Some ventures have problems in this regard because the product or service is still in development and needs further modification or testing. Other ventures find that because they bring their product to market too soon, it must be recalled for further work.
5. CustomerAvailability
If the product is available for the venture is started, the likelihood of venture success is considerably better than otherwise. Similarly, venture risk is affected by customer availability for start-up. At one end of the risk continuum is the situation where customers are willing to pay cash for products or services before delivery. At the other end of the continuum is the enterprise that gets started without knowing exactly who will buy product.
Location selection Project formulation Feasibility analysis Techno-economic analysis Project Design and Net-work analysis Input analysis Financial analysis
VI. Social cost benefit analysis VII. Project appraisal VIII. Pre-investment analysis. e. Business Plan preparation f. Selection of project
g. Project profile. 2. Decide on from of ownership. 3. Complete the legal requirements a) No objection certificate (NOC) b) Obtain SSI registration c) Obtain clearances from departments as applicable 4. 5. 6. 7. 8. Arrange for and and building Arrange for plant and machinery Arrange for infrastructure Prepare Project Report Apply and Obtain Finance (a) Proceed to implement (b) Obtain final clearance.
Preparation of Project
Meaning and Definition of Project:
A project is an speculative imagination or idea or plan that intended to be carried out. It involves allocation and consumption of resources in the expectation of a stream of benefits extending far into the future. The dictionary meaning of a project is that - it is a scheme, a design, a proposal of something intended or devised to be achieved in viable frame work. In other words, a project is an capital investment carried out as per plans to achieve a definite objective with a defined time frame. A project deals with three dimensions - Innovation, Vision and Risk. According to Newman, Summer and Warren - "A project typically has a distinct mission that it/s designed to achieve and a clear termination point, the achievement of mission". According to Gillinger - "A project is a whole complex of activities involved in using resources to gain
benefits".
Characteristics of Project :
The following are the important characteristics of project: (1) A project has a fixed set of objectives. Once the objectives have been achieved, the project ceases to exist. (2) A project cannot continue endlessly. It has come to an end. Thus, project has a definite life span. (3) A project is one entity and is normally entrusted to one responsibility center while the participants in the project are many. (4) A project calls for team work. The team is constituted of people belonging to different functional groups of organization. (5) A project has a definite life cycle reflected by growth, maturity and decay (6) No two projects are exactly similar. The location, the infrastructure, the agencies and the people make each project unique. Thus, all the projects are unique. (7) A project is subjected to a lot of change. (8) 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. (9) A project is always made to the order of its customer. The customer stipulates various requirements and puts constraints within which the project must be executed. (10) 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.
2. Sectoral Project :
Indian Planning Commission has made another classification of projects. According to this classification, a project may fall in any one of the following categories. a) Agriculture and Allied Sector b) Irrigation and Power Sector c) Industry and Mining Sector d) Transport and Communication Sector e) Social Services Sector f) Miscellaneous Sector. The project classification based on economic sectors is found useful in resource allocation more especially at macro levels.
classification includes : a. Factor Intensity - Oriented Classification: Factor intensity classification categories, the projects into capital intensive or labour intensive. If large investment is made in plan and machinery, the projects will be termed as capital intensive. On the other hand, if the project involves large number of human resources, it will be labour intensive. b. Causation - Oriented Classification: Causation oriented classification classifies projects as demand based or raw-material based. The very existence of demand for certain goods or services makes the project demand based, and the availability of certain rawmaterials, skills or other inputs makes the project raw-material based. c.
d. Project Formulation Feasibility analysis Techno-economic analysis Project Design and Net-work analysis Input analysis Financial analysis Social cost benefit analysis Project appraisal Pre-investment analysis
g. Project Profile.
a. Project Identification :
In setting up enterprise, an entrepreneur work starts with project identification. product identification is concerned with the collection, compilation and analysis of economic data and the eventual purpose of locating possible opportunities for investment and with the development of the characteristics of such opportunities. The idea behind project identification is finding out business opportunities which are feasible and promising and which merit further expansion and appraisal. According to Peter F. Drucker, opportunities are three types :
1. Additive Opportunities: Additive opportunities are those opportunities which ensure the
entrepreneur to utilize the existing resources in a better way without in any way giving a change in the character of the business.
b. Selection of Product or Service : Product or service selection starts from where project identification ends. Entrepreneur is free to select any product which he thinks that product is profitable and viable from market point of view. The process of selection of a product has been considered as an important decisional area. If the entrepreneurs selects and develops a particular product they have to identify their opportunities/ideas and select their products on the basis of the following analysis.
Entrepreneurs may select their products based on their own experience or their partners experiences in the line. Entrepreneur may select products based upon the expansion and diversification plans or their own or any other on going business or industry. Entrepreneurs may select products which are likely to have a ready demand either in the local or regional market. Entrepreneurs may select products whose imports are banned or controlled by the government. Entrepreneurs may select products which show high profitability. Entrepreneurs may select products based on certain specific advantages available to that product such as reservation of product line for small units, concessional finances or other resources being made available by the government or other incentives.
Entrepreneurs may select product line, guided mainly by changes in certain aspects of industrial policy, more specifically changes in control and regulation of prices of rawmaterials.
(1) Technical Knowledge: Availability of technical capability to entrepreneur helps him in selecting
a product in that particular technical field. Similarly, if entrepreneur himself have gained substantial amount of experience in manufacturing and marketing of a particular product then the selection of such a product would be helpful to him.
(2) Availability of Market: A wide market creates more demand for the product and market risk also
be reduced in that ways. The entrepreneur should have a clear cut answer about the product market How to sell and where to sell?
(3) Financial Strength: Manufacturing process of a product needs huge funds in capacity creation.
Prototype development, R & D, working capital expenses required at preliminary stage and payment of royalty, etc. Entrepreneur should ensure his position to what extent he is ready to invest in the product as well as to maintain liquidity of the business.
(4) Position of Competition: Product performance in market is also governed by the level of
competition available in that particular market.
(5) Priority of Products: In certain cases products belong to the priority sector industries and
certain products are reserved for exclusive production in small scale sector. In those cases level of competition is comparatively less in comparison to general products. Similarly, certain products are listed by the Government for exclusive purchase from the small scale sector. Thus, if particular product belongs to those categories these considerations generally receive more weightage in selection of the product.
(6) Seasonal Stability: Continuity in demand of a product during the whole year as a stable market
than to a seasonal product. Seasonal inelasticity of a product affects favorably in the section of a product. Side by side, sales of product should not be affected by abnormal fluctuations. An entrepreneur should prefer only those products which have continuous demand in the market.
(8) Supply of Raw Materials Adequate supply of raw material is necessary to maintain a
continuous production process of a product. Entrepreneur should also try to ensure a continuous supply of raw-materials in desired quantity for whole of the year. Local supply or external supply also affects the selection of a product. In case of external supply, entrepreneur will be required to maintain comparatively a high level of inventory or raw materials.
of incentives, concessions, tax exemptions, tax rebate, etc., on production of certain items which are treated as import substitutes or as an essential item.
(10) Ancillary Products: In case of product to be produced by ancillary units, it means will serve as a
major component for the parent industry. In this situation, there will be a ready demand for the product and entrepreneur can easily select this product for proposed project.
(11) Locational Advantage: There are certain products which are meant for production only in free
trade zones, export promotion zones, special export promotion zones. Government also provides export incentives and tax concessions etc., to these units, so it would be better for the entrepreneur to select these items for production purpose
(12) Licensing System: As per industrial policy, government formulates licensing policy from time to
time. In certain products, it is must for the entrepreneur to seek necessary licenses from the
government authorities.
(9) Government Policy: Product selection process should also be analyzed in terms of Government
policy and its impact. If Government Policy is favourable to a particular product then selection of that particular product will prove helpful to the entrepreneur.
c.
Location Selection:
One of the major decisions of entrepreneur has to make it about the location of the project enterprise where to set up the unit.
Steps in Project / Enterprise Location : Following steps are important in selection of particular
location or site of the plant, Selection of the region. Selection of the locality or community Selection of the exact site, and Selection of an optimum site.
Some of the major aspects to be considered before the deciding on the location of the project/enterprise are: Availability of land. Proximity to the market. Availability of raw materials. Availability of transportation and communication facilities. Supply of man power. Availability of incentives! concessions. Government policy. Availability of suitable infrastructure facilities. Local laws and regulations. Ecological and environmental factors. Regional development. Industrial estates and parks.
d.
Project Formulation :
The project formulation stage is an analytical management tool to study a series of alternatives to a situation or project proposals, evaluate the alternative approaches and make investment decision. Project formulation is an important strategy of pre-investment phase where product idea is to be converted into a Project idea.
(1) Feasibility Analysis (2) Techno-economic Analysis (3) Project Design and Network Analysis (4) (5) (6) (7) Input Analysis Financial Analysis Social Cost Benefit Analysis Project Appraisal
Generally, the exercise in project analysis is carried out dividing it formally into two stages: (a) Pre-feasibility study (b) Project feasibility study, and
Feasibility study is defined as "a formal investigation of profitable opportunity which leads rational decisions about making an investment decisions". Feasibility studies consist of: Market feasibility/analysis Technical feasibility/analysis Financial feasibility/analysis Economic and Social feasibility/analysis Commercial feasibility/analysis Ecological feasibility/analysis
Market Feasibility/Analysis :
Any project has no value if the products/services are not sold. Hence, feasibility/ analysis from marketing prospective is made. The market feasibility/analysis consists of: Potential markets Market feasibility/analysis is concerned primarily with two questions What would be the aggregate demand of the proposed product/service in future. What would be market share of the project under appraisal?
To answer the above questions, it requires a wide variety of information and approTe ate forecasting methods. The kinds of information required are given below : Consumption trends in the past and the present consumption level. Past and present supply position. Production possibilities and constraints. Imports and exports. Structure of competition etc
Technical Feasibility/Analysis:
It is an attempt to determine how well the technical requirements of the industry can be met. Analysis of the technical and engineering aspects of a project needs to be done continually when a project is formulated.
The important questions raised in technical feasible/analysis are given below : (i) (ii) (iii) (iv) Have the preliminary tests and studies been done or provided for? Has the availability of raw materials, power, and other inputs been established"; Is the selected scale of operation is optimal? Is the production process chosen suitable?
Financial Feasibility/Analysis :
Financial Feasibility / Analysis deals with evaluation of the estimates of cost of the project to ensure that it contains all provisions for contingencies and are realistic, Financial feasibility/analysis seeks to ascertain whether the proposed project will be financially viable in the sense of being able to meet the burden of servicing debt and whether the proposed project will satisfy the return expectations of those who provide the capital. The aspects which have to be looked into while conducting a financial feasibility/analysis are as follows o The capital requirements and its time frame: The break - up of the capital requirements such as plants, machinery, land and buildings, other fixed assets of the proposed project. Working capital requirements at various stages of the project and period of operation. Means of Financing. Projected Profitability. Investment worthiness judged in terms of various criteria of merit. Projected financial position.
o o o o o
Economic Feasibility/Analysis :
The Economic Feasibility /Analysis include the government policies with regard to particular segment of the industries, the government incentives for specific location or tax holidays and the like. The feasibility/analysis should include the board economic aspects like o o o Demand projections. Anticipated sales volume and how the project is planning to meet the demands. Study c ````of improvements in output, enhanced services.
Commercial Feasibility/Analysis :
It evaluates the commercial aspects of the arrangements of the project. It also arrangement process for procurement of machinery and equipment examines the
Ecological Feasibility/Analysis :
In recent years, environmental concerns have assumed a great deal of significance Ecological feasibility/analysis should be done, particularly for major projects which has significant ecological implications like power plants and irrigation schemes, and for environment pollution industries (like bulk drugs, chemicals, and leather processing). The key questions raised in ecological analysis are as follows: o o What is the likely damage caused by the project to the environment? What is the cost of restoration measures required to ensure that the damage to environment is contained within acceptable limits?
(2) TECHNO-ECONOMIC ANALYSIS The Techno-economic analysis is concerned with the identification of the project demand potential and selection of the optimal technology suitable for achieving the project objectives.
e.
Business planning is an ongoing process in any industry or business or business enterprise. It is more important for a new business. The preliminary business plan drawn initially goes evolving and refining as the entrepreneur learns more about market, the project, the management team and the fund requirements of the new venture. f.
Project Selection:
Project selection starts from where project formation ends. In this step, project idea identified are screened on the basis of their feasibility analysis, techno-economic analysis project design and network analysis, input analysis, financial analysis, social cost-benefit analysis, project appraisal, pre-investment analysis. After screening the project ideas are translated into project proposals. After developing a large number of project proposals, the entrepreneur will select the most appropriate
g.
Project Profile :
A project profile gives a bird's-eye view of the proposed project. This may be used for obtaining the Provisional Registration Certificate (PRO) from the District Industries Centre and making, applying for Industrial Areas Development Board for land or State Small industrial Development Corporation (SSIDC) for shed and other infrastructures. In formation heads in a Project Profile is as follows : o Introduction o Promoter(s) Background (education, experience and so on) o Product(s) description (specification, uses, and so on) o Market and marketing
(B) Obtain SSI Registration : Small-scale and ancillary units that is undertaking with
investment in plant and machinery of less than Rs. 1 crore should seek registration with the Director of Industries of the concerned State Government.
Provisional Registration Certificate (PRC) : A provisional registration certificates is the initial registration for starting a small-scale industry. It enables the entrepreneur initiate necessary steps to bring the unit into existence.
Registration Formalities : The entrepreneur should make an application in the scribed application form (in duplicate) along with the following :
(1) Prescribed court fee stamp (2) Copy of the project profile (3) Partnership deed/Memorandum and Articles of Association, as the case may be (4) Affidavit, as per format on appropriate stamp paper.
Industrial Land : Once the location of the unit is decided, the land for the project could be
conveniently taken from the State Industrial Areas Development Board. However private land could also be purchased, but it has to be converted for industrial purpose other necessary legal/formalities will have to be completed.
Industrial Shed : For setting up an SSI unit, the promoters could consider using -a ready
industrial shed. This could be on rent or on ownership basis. Rental sheds have to be arranged from private owners. Purchase of industrial sheds has to be arranged from private owners. Purchase of industrial sheds is possible under outright purchase or hire purchase scheme.
district level for the benefit of scale industries. The SWA provides clearances for various infrastructure and other ties for the tiny and small-scale industries.
Project Report is a great importance. The Need and Importance of project report are discussed below : (1) It acts like a road map of the project (2) It describes the direction of the enterprises is going in, what its goals are, where it wants to be, and how it is going to get there. (3) It enables an entrepreneur to know that he is proceeding in the right direction. (4) It helps in attracting lenders and investors. (5) It is required and beneficial for small-scale enterprise to apply for financial assistance from the financial institutions and the commercial banks. (6) It is on the basis of project report that the financial institutions make appraisal, if the enterprise requires financial assistance. (7) It ensures the practicability of a project in terms of different factors like economy, finance, technology and social desirability. (8) it shows economic soundness of the proposal to other organization/authorities, which provide various assistance such as work shed, raw material, seed/margin money,etc. (9) It is also need by the entrepreneur for carrying out expansions or starting a new production line. (10) It helps in determining the profitability of the project and minimising risks in the execution of the project.
Construct Shed : If the entrepreneurs have takne a ready-made shed from the S:E Small Industries Development Corporation or have made arrangements for rental sheds/premises then they need not go through this step. However, if they have obtained land in an indusn estate or have made arrangements for vacant land privately, then they have to take steps construct the shed for their industry.
The concerned authorities like the municipal corporations or municipalities or villa panchayats and so on, as the case may be, should approve the plane for the industrial st-E The entrepreneurs should obtain suitable quotations from established contractors and de: on awarding the contracts to suitable contractors. Alternatively, they could undertake - construction of a shed by arranging for materials and labour directly. While contructing shed entrepreneurs have to take necessary steps to
arrange for water supply, drainage syste electrical wiring and so on, through licensed contractors.
Order for Machinery : Entrepreneurs should take steps to order the necessary machineequipment and
so on, through deaie: s or make arrangements to get them on hire purchase through NSIC or any other suitable organization. The terms and conditions for ordering machinery, equipment and so on, will very from dealer to dealer. Hence, entrepreneurs will have to make the necessary arrangements as per the terms and conditions of the dealers. Delivery dates will vary depending the type of machinery, equipment, and so on and the dealer through whom these are ordered. Keeping these factors in mind, entrepreneurs should plan to order the necessary machinery, equipment and so on such that they are able to obtain them in time to implement the project.
Recruit Personnel : Depending upon the size of the industry and type of product, entrepreneurs will have to hire different types of personnel for the industry. Certain managerial and technical personnel may be required in the initial stages of the project. These personnel may be needed for preliminary work, for supervision and related work during planning and implementation of the project. Accordingly, entrepreneurs should take steps to hire key managerial and technical personnel well in advance. Most of the other personnel and office staff will be needed as soon as the unit is ready for commissioning. Accordingly, the entrepreneur should plan to hire such other persons at the appropriate time. Arrange for Raw Materials : Entrepreneurs should plan for required raw materials as soon as they proceed to implement the project. They should try to get the necessary samples for the basic raw materials and components that they need to buy from outside for the project. During the implementation of the project, they should finalise the sources of raw materials and quality and quantity requirements for the project. Accordingly, they should plan and order the necessary raw materials and components so that they start receiving the supplies from the date of expected commissioning of the project. Marketing : Entrepreneurs would have already put thought to the market for their project and the marketing plan that they desire to take up for the products. They should build up the necessary contracts for marketing during the implementation stage. Tney have to undertake the necessary ground work of contacting prospective customers and preparing necessary plans for marketing. The planning should cover the product(s) design, pricing, promotional activities and distribution systems. Erection and Commissioning : Once the building is ready and the ncessary plant and machinery have arrived, entrepreneurs have to take steps to erect the machinery. The various items of plant and machinery should be erected as per the prepared loan. Sometimes sophisticated machinery is supplied along with the service of erection. In such cases, the erection and commissioning will be undertaken and completed by the machinery suppliers. Alternatively, the entrepreneurs have to take the necessary steps to erect the plant and machinery.
After the plant and machinery is erected, the entrepreneurs should proceed to commission the plant. Initially, during the trial-run period, entrepreneurs will have to make necessary adjustadjustments and changes in production and processes to obtain the desired quality products. Once the production/process of the units is standardised, they can proceed with commercial production.
Obtain Final Clearances : Entrepreneurs are required to take several final clearances when the unit is ready for commissioning or as soon as it goes into production. Accordingly, entreprenuers are advised to refer to the various preliminary clearances they have obtained from different departments/organisations and take necessary steps to obtain final clerances or approavals as required.
E n v i r o nm e n t P ol l ut i on r e l a t e d C l e a r a n c e s :
1. Pollution Control : A No Objection Certificate (NOC) should be obtained from the Slam Pollution
Control Board before commencement of construction activity. In case the indus74 falls in the highly polluting category, a full-fledged or rapid Environmental ImpactAssessr-err (EIA) has to be carried out and submitted to the State Pollution Control Board for appro.a after which the construction can commence.
2.
3. For units functioning ouside the industrial area : Permission has to be souorT from the
municipal corporation/municipality / panchayat. In case private agricultural Ian: purchased for the project, the land whould have to be rezoned as industrial zone. Permisscr to convert such agricultural land to industrial area would have to be obtained from the -ime office of the Directorate of Town and Country Planning before the actual start c- -.- construction.
4.
Registration and licensing of a boiler : Safety clearances of the Chief Elect-ar Inspector
and the Chief Inspector of Boilers required before commencing operations ortr electrical and pressure vessels (boilers) respectively. For registration as a 100 per cent export -oriented unit (EOU) - which enjoy many additional concessions, the clearance of the Development Commissione, the Export Processing Zone (EPZ) is required. If the company wishes to offer equity s'-F.--4m to the public, the clearance of the securities Exchange Board of India (SEBI) has :At taken