Directing & Controlling:Meaning and nature of

directing Leadership styles, Motivation Theories,

Communication - Meaning and importance coordination,
meaning
and
importance
and
Techniques of Co Ordination.Meaning and steps in
controlling - Essentials of a sound control system Methods of establishing control (in brief):
4.1 Directing & Controlling: Meaning and nature of
directing Leadership styles,
Definition:JUL 08

DEC

Leadership is defined as influence, the art or process

of influencing people so that they will strive willingly
and enthusiastically towards the achievement of
group goals.
Types and theories of leadership:
The leadership style are given below:

a) Autocratic style
b) Democratic Style
c) Laissez Faire Style
a) Autocratic style:

Manager retains as much power and decision making

authority as possible. The manager neither consult
employees nor are they allowed to give any input.
Employees are expected to obey orders without
receiving
any
explanations.
The
motivation
environment is produced by creating a structured set
of rewards and punishments.
Autocratic leadership is a classical leadership style
with the following characteristics:
Managers are less concerned with investing their
own leadership development and prefer to simply
work on the task at hand.
Manager seeks to have the most authority and
control in decision making.
Manager seeks to make as many decisions as
possible.
Consultation with other colleagues is minimal and
decision making becomes a solitary process.
Manager seeks to retain responsibility rather than
utilizing complete delegation.
Advantages:
1. A more productive group while the leader is
watching.

2. Reduced stress due to increased control.

3. Faster decision making.
4. Improved logistics of operations.
Disadvantages:
1. Manager perceived as having poor leadership skills.
2. Short-term approach to management.
3. Teams become dependent upon their leader.
4. People dislike being ordered around.
5. Increased workload for the manager.
b) Democratic Style:
Democratic Leadership is the leadership style that
promotes the sharing of responsibility, the exercise of
delegation and continual consultation.
The style has the following characteristics:
Manager effectively delegate tasks to subordinates
and give them full control and responsibility for those
tasks.
Manager seeks consultation on all major issues and
decisions.

 Manager encourages others to become leaders and

be involved in leadership development.
Manager welcomes feedback on the results of
initiatives and the work environment.
Advantages:
1. Successful initiatives.
2. Positive work environment.
3. Reduced employee turnover.
4. Reduction of friction and office politics.
5. Creative thinking.
Disadvantages:
1. Like the other styles, the democratic style is not
always appropriate. It is most successful when used
with highly skilled or experienced employees or when
implementing operational changes or resolving
individual or group problems.
2. Danger of pseudo participation.
3. Takes long time to take decisions.
c) Laissez-Faire Style:

This French phrase means leave it be and is used to

describe a leader who leaves his/her colleagues to get
on with their work.
The style is largely a "hands off" view that tends to
minimize the amount of direction and face time
required.
Advantages:
Frustration may force others into leadership roles.
No work for the leader.
Empowers the group.
Allows the visionary worker the opportunity to do
what they want, free from interference.
Disadvantages:
The manager doesnt understand his or her
responsibilities and is hoping the employees can cover
for him or her.
Managers are unable to thank employees for their
good work.
It makes employees feel insecure at the
unavailability of a manager. The manager cannot
provide regular feedback to let employees know how
well they are doing.

The various leadership theories are as follows:

Great Man Theory:
Assumptions:
Great leaders will arise when there is a great need.
Leaders are born and not made.
Description:
Early research on leadership was based on the study
of people who were already great leaders.
These people were often from the aristocracy as few
from lower classes had the opportunity to lead. This
contributed to the notion that leadership had
something to do with breeding.
Behavioural Theory:
Assumptions:
Successful leadership
learnable behaviour.

is

based

in

Leaders can be made rather than are born.

Description:

definable,

Behavioural theories of leadership do not seek inborn

traits or capabilities. Rather they look at what leaders
actually do.
If success can be defined in terms of actions, then it
should be relatively easy for other people to act in the
same way. This is easier to teach, learn and then to
adopt the more ephemeral 'traits' or 'capabilities'.
Trait Theory:
Assumptions:
Some traits are particularly suited to leadership.
People are born with inherited traits.
People who make good leaders have the right (or
sufficient) combination of traits.
Description:
Early research on leadership was based on the
psychological focus of the day, which was of people
having inherited characteristics or traits. Attention
was thus put on discovering these traits often by
studying successful leaders but with the underlying
assumption that if other people could also be found
with these traits, then they too could become great
leaders.

McCall and Lombardo (1983) identified four primary

traits by which leaders could succeed or 'derail':
Emotional stability and composure: Calm, confident
and predictable, particularly when under stress.
Admitting error: Owning up to mistakes rather than
putting energy in covering up.
Good interpersonal skills: Able to communicate and
persuade others without resort to negative or coercive
tactics.
Intellectual breadth: Able to understand a wide
range of areas rather than having a narrow area of
expertise.
Participative Leadership:
Assumptions
People are more committed to actions where they
have involved in the relevant decision-making.
Involvement in decision-making improves the
understanding of the issues involved by those who
must carry out the decisions.
When people make decisions together, the social
commitment to one another is greater and thus
increases their commitment to the decision.

 People are less competitive and more collaborative

when they are working on joint goals.
Several people deciding together make better
decisions than one person alone.
Description
A Participative Leader, rather than taking autocratic
decisions, seeks to involve other people in the
process, possibly including subordinates, peers,
superiors and other stakeholders. Often, however, as
it is within the managers' whim to give or deny control
to his or her subordinates, most participative activity
is within the immediate team. The question of how
much influence others are given thus may vary on the
manager's preferences and beliefs and a whole
spectrum of participation is possible
Situational Leadership:
Assumptions
The best action of the leader depends on a range of
situational factors.
Description
When a decision is needed, an effective leader does
not just fall into a single preferred style. In practice, as
they say, things are not that simple.

Factors that affect situational decisions include

motivation and capability of followers. This, in turn, is
affected by factors within the particular situation. The
relationship between followers and the leader may be
another factor that affects leader behaviour as much
as it does followerbehaviour.
The leaders' perception of the follower and the
situation will affect what they do rather than the truth
of the situation. The leader's perception of themselves
and other factors such as stress and mood will also
modify the leaders' behaviour.
4.2 Motivation Theories
Motivation Theories are:
1.Maslows need hierarchy theory (priority model).
2.Herzbergs two factor theory.
3.McGregors theory X and Theory Y.
4.MacClelland achievement theory of motivation.
1. Maslow identified the basic human needs are:

Basic human needs

(a)Physiological Needs:
According to this hierarchy, our first need is survival
which includes the clothing, food, shelter, water, sleep
and air etc. These are called as physiological needs,
the need for those things which will keep us alive and
functioning physiologically.
(b)Safety Needs:
Security and safety needs are secondary in priority.
Everybody needs economic security and physical
protection. These needs includes protection against
threat, job security, property, insurance, provisions for
old age. Management can offer pension, insurance
and job security tofulfill their needs.
(c)Social Needs:
Social needs are the needs for the sense of
belongingness and acceptance by others. These

needs can be fulfilled by effective communication,

supervision, good co-workers (peers), superior etc.
(d)Esteem Needs:
Esteem needs are related to the two prolonged desire
to have a positiveself-image and to have our
contribution appreciated by others. They are of two
types:
(i)Self-esteem.
(ii)Public esteem.
(e)Self-Actualisation Needs:
Maslow regards this as the highest need in this
hierarchy.
Self-actualisation
pertains
to
the
requirements of developing capability and reaching
full potential.
2. McGregors theory X and theory Y:
McGregor states that people inside the organization
can be managed in two ways. The first is basically
negative which falls under the category X and the
other is basically positive which falls under the
category Y. After viewing the way in which the
manager deals with his/her employees, McGregor
concluded that a managers view on the nature of
human beings is based on a certain grouping of

assumptions and that he or she tends to mould his or

her behaviour towards subordinates according to
these assumptions.
Under the assumptions of theory X:
Employees inherently do not like work and whenever
possible will attempt to avoid it.
Because employees dislike work, they have to be
forced, coerced or threatened with punishment to
achieve goals.
Employees avoid responsibilities and do not work fill
formal directions are issued.
Most workers place a greater importance on security
over all other factors and display little ambition.
In contrast, under the assumptions of theory Y:
Physical and mental effort at work is as natural as
rest or play.
People do exercise self-control and self-direction if
they are committed to those goals.
Average human beings are willing to take
responsibility and exercise imagination, ingenuity and
creativity in solving the problems of the organization.

 The way the things are organized, the average

human beings brainpower is only partly used.
On analysis of the assumptions it can be detected that
theory X assumes that lower-order needs dominate
individuals and theory Y assumes that higher-order
needs dominate individuals.
An organization that is run on theory X lines tends to
be authoritarian in nature, the word authoritarian
suggests such ideas as the power to enforce
obedience and the right to command.
In contrast, Theory Y organizations can be described
as participative, where the aims of the organization
and of the individuals in it are integrated. Individuals
can achieve their own goals best by directing their
efforts towards the success of the organization.
3.Stacey Adams Equity Theory:
As per the equity theory of J. Stacey Adams, people
are motivated by their beliefs about the reward
structure as being fair or unfair, relative to the inputs.
People have a tendency to use subjective judgment to
balance the outcomes and inputs in the relationship
for comparisons between different individuals.
Accordingly: If people feel that they are not equally
rewarded they either reduce the quantity or quality of

work or migrate to some other organization. However,

if people perceive that they are rewarded higher, they
may be motivated to work harder.
According to Koontz and O'Donnell, "Communication,
is an intercourse by words, letters symbols or
messages and is a way that the organization members
shares meaning and understanding with another".
4.2.1 Communication
THE COMMUNICATION PROCESS
Communication is important in building and sustaining
human relationships at work. Communication can be
thought of as a process or flow. Before communication
can take place, a purpose, expressed as a message to
be conveyed is needed. It passes between the
sender and the receiver. The result is the transference
of meaning from one person to another.
The figure here depicts the communication process.
This model is made up of seven parts:
Source, (2) Encoding, (3) Message, (4) Channel, (5)
Decoding, (6) Receiver and (7)Feedback.

Communication process
a) Source:
The source initiates a message. This is a origin of the
communication and can be an individual, group or an
object.
The effectiveness of the communication depends to a
considerable degree on the characteristics of the
source.
The person who initiates the communication process
is referred as sender, source or communicator. In an
organization, the sender will be a person who has a
need or desire to send a message to others.
The sender has some information which he wants to
communicate to some other person to achieve some
purpose. By initiating the message, the sender
attempts to achieve understanding and change in the
behaviour of the receiver.
b) Encoding:
Once the source has decided what message to
communicate, the content of a message must be put
in a form the receiver can understand. As the
background for encoding information, the sender uses
his or her own frame of reference.

It includes the individual's view of the organization or

situation as a function of the personal education,
attitudes, interpersonal relationships, knowledge and
experience.
Three conditions are necessary for successful
encoding of the message that includes the following:
Skill: Successful communication depends on the
skill we posses. Without the requisite skills, the
message of the communicator will not reach the
receiver
in
the
desired
form.
One's
total
communicative success includes speaking, reading,
listening and reasoning skills.
Attitudes: Our attitudes influence our behaviour.
We hold predisposed ideas on a number of topics and
our communications are affected by these attitudes.
Knowledge: We cannot communicate what we
don't know. The amount of knowledge the source
holds about his or her subject depends on the
message he or she seeks to transfer.
c) The Message:
The message is the actual physical product from the
source encoding. The message contains the thoughts
and feelings that the communicator intends to evoke
in the receiver.

The message has two primary components:

The Content: The thought or conceptual
component of the message is contained in the words,
ideas, symbols and concepts chosen to relay the
message.
The Affect: The feeling or emotional component of
the message is contained in the intensity, force,
demeanour (conduct or behaviour) and sometimes the
gestures of the communicator.
d) The Channel:
The actual means by which the message is
transmitted to the receiver (Auditory, visual, written
or some combination of these three) is called the
channel.
The channel is the medium through which the
message travels. The channel is the observable carrier
of the message.
Communication in which the sender's voice is used as
the channel is referred as oral communication. When
the channel involves written language, the sender is
using written communication.
The sender's choice of a channel conveys additional
information beyond that contained in the message
itself. For example, documenting an employee's poor

performance in writing conveys that the manager has

taken the problem seriously.
e) Decoding:
Decoding means interpreting what the message
means. The extent to which the decoding by the
receiver
depends
heavily
on
the
individual
characteristics of the sender and receiver.
The greater the similarity in the background or status
factors of the communicators, the greater the
probability that a message will be perceived
accurately. Most of the messages can be decoded in
more than one way.
Receiving and decoding a message are a type of
perception. The decoding process is therefore subject
to the perception biases.
f) The Receiver:
The receiver is an object to whom the message is
directed. Receiving the message means one or more
of the receiver's senses register the message. For
example, hearing the sound of a supplier's voice over
the telephone or seeing the boss give a thumbs-up
signal.

Like the sender, the receiver is subject to many

influences that can affect the understanding of the
message.
Most importantly, the receiver will perceive a
communication in a manner that is consistent with
previous experiences. Communications that are not
consistent with expectations is likely to be rejected.
g) Feedback:
The final link in the communication process is a
feedback loop. Feedback in effect, is communication
travelling in the opposite direction.
If the sender pays attention to the feedback and
interprets it accurately, the feedback can help the
sender to learn whether the original communication
was decoded accurately.
Without feedback, one-way communication occurs
between managers and their employees. Faced with
differences in their power, lack of time and a desire to
save face by not passing on negative information,
employees may be discouraged from providing the
necessary feedback to their managers.
Different
types
communications:

of

formal

a)Formal Communication:

organizational

Formal communication follows the route formally laid

down in the organization structure.
There are three directions in which communications
flow: downward, upward and laterally.
i)Downward Communication:
Downward communication involves a message
travelling to one or more receivers at the lower level
in the hierarchy. The message frequently involves
directions or performance feedback.
The downward flow of the communication generally
corresponds
to
the
formal
organizational
communications system which is usually synonymous
with the chain of command or line of authority. This
system has received a great deal of attention from
both the managers andbehavioural scientists since it
is crucial to organizational functioning.
ii)Upward Communication:
In upward communication, the message is directed
towards a higher level in the hierarchy. It is often
takes the form of progress reports or information
about successes and failures of the individuals or work
groups reporting to the receiver of the message.
Sometimes employees also send suggestions or

complaints
hierarchy.

upward

through

the

organizations

The upward flow of communication involves two

distinct manager-subordinate activities in addition to
feedback. They are as follows:
The
participation
by
organizational decisions.

employees

in

formal

Employee appeal is a result against formal

organization decisions. The employee appeal is a
result of the industrial democracy concept that
provides for two-way communication in areas of
disagreement.
iii)Horizontal Communication
If it takes place among members of the same work
group, among members of work groups at the same
level, among managers at the same level or among
any horizontally equivalent personnel, we call it as
lateral communications.
In lateral communication, the sender and receiver(s)
are at the same level in the hierarchy. Formal
communications
that
travel
laterally
involve
employees engaged in carrying out the same or
related tasks.

4.2.2 Coordination, Meaning And Importance And

Techniques Of Co Ordination.
The significance of co-ordination as a operate of
management mainly arises from the fact that work
performed by different groups, units or departments
form integral part of the total work for which an
organisation is established. Without harmonised effort
or unity of action, achievement of goals in some
departments may run counter to that of the other
departments or the timing of achievements may not
fit in properly. This should be avoided and therefore
the managers have to be compelled to stop
overlapping and conflict thus on bring home the
bacon unity of action. With increasing size and scale
of operations, the importance of co-ordination
becomes additional vital. this is often owing to the
subsequent reasons.
(a) When there is growth in size and therefore the
volume of work, there will be more people and work
teams. So there is greater possibility of people
working at cross purposes as the unit and sub-unit
goals may be considered more important by them
than the organisational goals. Not only that, the large
size may also lead problems of supervision and
communication. Hence coordinating the activities in a
large concern becomes a major task for the
managers.

(b) Massive organisations generally tend to have

activities located at different places, which may not
permit frequent and close interaction among people.
Hence, the need for coordination becomes greater
and it becomes a major responsibility for the
managers.
(c) Growth in size of an organisation is often combined
with diversification of business activities. This may be
due to new unrelated products being added to the
existing products. As a result, there may be more
division and sub-division of activities. At the same
time, there is an increase in the number of managerial
levels and vertical division of responsibilities.
All these create coordination tougher similarly as vital.
visible of the importance of coordination in an
organisation, it's typically referred to as the essence
of management. it's a operate of managers altogether
departments and branches of an organisation, and
applies in the least levels of management
It ultimately helps in reconciliation of goals, total
accomplishment of business objectives, maintenance
of harmonious relationship between different groups
and ensuring economy and efficiency in the
organisation
IMPORTANCE
ORDINATION

AND

TECHNIQUES OF

CO

1. Well defined goals:

The first suggests that or technique of coordination is
well outlined goals. The goals of the organization
ought to be clear and well outlined. every individual
within the organization ought to perceive the general
goals. once the goals don't seem to be well outlined
the coordination might not effective.
2. Sound organization structure:
A coordination is that the essence of management. It
is not possible without sound organization structure.
The authority and responsibility for each and every
positions and employees should be clearly defined.
3. Effective communication:
The
coordination
helps
in
creating
proper
understanding among persons. Without effective
communication, coordination may be effective. The
ideas, opinions should be interchanged freely. It is only
through effective communication that even individual
understand
his/her
limitations,
positions
and
responsibility
in
the
organization.
Effective
communication helps in coordination. Therefore, it is
also an important means of coordination.
4. Proper leadership:

The proper leadership leads the subordinates

effectively and expeditiously. an honest social control
leader uses the psychological feature tools to
coordinate the workers with effective communication
system. In short, coordination is formed attainable
through correct leadership
5. Proper supervision:
Supervisors coordinate the subordinates and their
activities. Top level management cannot coordinate all
employees. In short, proper supervision helps in
effective coordination.
6. Better plans and policies:
Coordination is made according to plans and policies
of the organization and departments. When the plans
and policies are not better coordination is not
effective in the organization.
7. Cooperation:
Without cooperation, coordination may not succeed
because coordination is related to employees and
their activities. When they are not cooperative,
coordination may not be made. So, cooperation is
essential in the organization.
8. Meeting and conference:

The coordination may be possible when all employees

their all activities and departmental goals are involved
in organizational planning and policies. Their all
problems and matters may be involved. When there is
environment of constructive discussion and debate
with meeting and conference
9. Group decision:
The group decision is a decision in which all members
of the organization are participated to make decisions.
The ideas and feelings are mixed into the decision and
coordination may succeed.
4.3 Meaning and steps in controlling
Control as a management function involves the
following steps:

1. Establishing Standards:
The standards are criteria against which results are
measured. They are norms to achieve the goals.

Standards are usually measured in terms of output.

They can also be measured in non-monetary terms
like loyalty, customer attraction, goodwill etc. Some of
the standards are as.
a. Time standards:
The goal are going to be attack the premise of your
time lapse in playacting a task.
b. Cost standards:
These indicate the monetary expenditures involved
per unit, e.g. materialvalue per unit, cost per person,
etc.
c. Income standards:
These relate to monetary rewards received due to a
particular activity like sales volume per month, year
etc.
d. Market share:
This relates to the share
product within the market.

of

the

company's

e. Productivity:
Productivity will can be measured on the basis of units
produced per man hour etc.

f. Profitability:
These goals will be set with the consideration of cost
per unit, market share, etc.
2. Measuring Performance
Measurement involves comparison between what is
accomplished
and
what
was meant to
be
accomplished.
The
measurement
of
actual
performance must be in the units similar to those of
predetermined criterion.
The unit or the yardstick thus chosen be clear, welldefined and easily identified and should be uniform
and homogenous throughout the measurement
process.
The performance
following steps:

can

be

measured

by

the

(a) Strategic control points:

It is not possible to check everything that is being
done. So it is necessary to pick strategic control points
for measurement. Some of these points are:
(i) Income:
It is a significant control point and must be as much
per unit of time as was expected. If the income is

significantly off form the expectation then the reasons

should be investigated and a corrective action taken.
(ii) Expenses:
Total and operational value per unit should be
computed and should be adhered to. Key expense
knowledge should be reviewed sporadically.
(iii) Inventory:
Some minimum inventory of both the finished product
as well as raw materials must be kept in stock as a
buffer. Any change in inventory level would determine
whether the production is to be increased or
decreased.
(iv) Quality of the product:
Standards of established quality should be maintained
especially in food process, drug manufacturing,
automobiles, etc. The process should be continuously
observed for any deviations.
(v) Absenteeism:
Excessive absenteeism of personnel is a serious
reflection on the environment and working conditions.
Absenteeism in excess of chance expectations must
be seriously investigated.
(b) Meclzanised measuring devices:

This involves a wide variant of technical instruments

used for measurement of machine operations, product
"quality for size and ingredients and production
processes. These instruments may be mechanical,
electronic or chemical in nature.
(c) Ratio analysis:
Ratio analysis is one of the most important
management tools. It describes the relationship of one
business variable to another.
The following are some of the important ratios:
i) Net sales to working capital:
The working capital must be utilised adequately. If the
inventory turnover is rapid then the same working
capital can be used again and again. Hence for
perishable goods, this ratio is high. Any change in
ratio will signal a deviation from the norm.
ii) Net sales to inventory:
The greater the turnover of inventory, generally, the
higher the profit on investment.
iii) Current ratio:
This is the ratio of current asset (cash, receivables
etc.) to current liabilities and is used to determine a
firm's ability to pay the short term debts.

iv) Net profits to net sale:

This ratio measures the short-run profitability of a
business.
v) Net profits to tangible net worth:
Net worth is the difference between tangible assets
(not good will, etc) and total liabilities. This ratio of net
worth is used to measure profitability over a long
period.
Vi) Internet Profits To Net Working Capital:
The net-working capital is the operating capital at
hand. This would determine the ability of the business
to finance day-to-day operations.
vii) Collection period on credit sales:
The collection amount ought to be as short as
attainable. Any deviation from established assortment
amount ought to be promptly investigated.
viii) Inventory to net working capital:
This ratio is to determine the extent of working capital
tied up in inventory. Generally, this ratio should be
less than 80 per cent, ix) Total debt to tangible net
worth: This ratio would determine the financial
soundness of the business. This ratio should remain as
low as possible.

(d) Comparative statistical analysis:

The operations of one company can be usefully
compared with similar operations of another company
or with industry averages. It is a very useful
performance measuring device.
(e) Personal observation:
Personal observation both formal and informal can be
used in certain situation as a measuring device for
performances, specially, the performance of the
personnel. The informal observation is generally a
day-to-day routine type. A manager may walk through
a store to have a general idea about how people are
working.
3. Comparing the Actual
Expected Performance

Performance

with

This is the active principle of the process. The

previous two, setting the goals and the measurement
format are the preparatory parts of the process. It is
the responsibility of the management to compare the
actual performance against the standards established.
This
comparison
is
less
complicate
if
the
measurement units for the standards set and the
performance measured are the same and quantified.

The comparison becomes more difficult when these

require subjective evaluations
Ralph C. Davis identifies four phases in the
comparison.
1. Receiving the raw data.
2. Accumulation, classification and recording of this
information.
3. Periodic evaluation of completed action to date.
4. Reporting the status of accomplishment to higher
line authority.
At the third phase, deviations if any are noted
between standards and performance. If clear
cut deviations are there, then management
must study the:(i) Causes for deviation
(ii) Result of deviation
(iii) Size of deviation
(iv) Positive or negative deviation.
4. Correcting Deviations:
The final part in the process is the taking corrective
action. Measuring and comparing performance,

detecting shortcomings, failures or deviations, from

plans will be of no avail if it does point to the needed
corrective action.
Thus controlling to be effective, should involve not
only the detection of lapses but also probe into the
failure spots, fixation of responsibility for the failures
at the right quarters, recommendation of the best
possible steps to correct them. These correct actions
must be applied when the work is in progress. The
primary objective should be avoidance of such failures
in future.
The required corrective action will be determined from
the qualified knowledge as per the standards ordered
out and also the performance analysis already done.
This step ought to be taken promptly, otherwise losses
could also be accumulative and remedial action are
going to be all the tougher to require
Corrective action should be well balanced, avoiding
over controlling and at the same time letting not
things to drift.
4.4 Essentials Of a Sound Control System
The essentials of a sound control system are as
follows:
(1) Suitable:

The system ought to be applicable to the character

and wishes of the activity. for instance, a machine
primarily based technique of production needs system
that is totally different from the system that's utilized
in labour intensive strategies of production. therefore
each enterprise ought to develop such an impression
system it'd serve its purpose.
(2) Timely and forward looking:
The system should be directed towards future. It
should report all the deviations from the standards
quickly so as to safeguard the future. The feedback
system should be as short and as fast as possible. If
the control reports are not directed at future, they are
of no use as they will not be able to suggest the kind
of measures to be taken to rectify the past deviations.
(3) Objective and comprehensible:
The control system should be both objective and
understandable. Objective controls specify the
expected results in clear and definite terms and leave
little room for the argument by the employees. They
provide employees with direct access to any
additional information which they may need to
perform their task. Employees are not made to go up
and down the hierarchy to get the information.
(4) Flexible:

The flexible control system ought to be versatile so it

are often adjusted to suit the wants of any
modification within the surroundings. It ought to be
adoptable to new developments together with the
failure of the system itself.
(5) Economical:
Another demand of a good control system is economy.
The benefits derived from the control system should
be more than the cost involved in implementing it.
(6) Control by exceptions:
This is also known as management by exception
according to this principle, only significant deviations
from standards, whether positive or negative
requirement
management
as
they
constitute
exceptions. An attempt to go through all deviations
tends to increase unnecessary work and decrease
attention on important problems.
(7) Prescriptive and operational:
A control system in order to be effective and
adequate, must not only detect deviations, but should
also provide solutions to the problems that cause
deviations. In other words, the system should be
prescriptive and operational. It must disclose where
failures are occurring, who is responsible for them and

what should be done about them. It must focus more

on action than on information.
(8) Acceptable to organization members:
The system ought to be acceptable to organization
members. once standards area unit set unilaterally by
higher level managers, there's a danger that workers
can regard those standards of unreasonable or
impractical. they will then refuse to satisfy them.
(9) Motivation:
A good control system should be employee centered.
The control system is designed to secure positive
reactions from employees. If large deviations are
found, the employees will be properly directed and
guided instead of being punished. The very purpose of
a control is prevention and not punishing.
4.4.1 Methods of establishing control
The control methods are broadly classified into two
types namely past-oriented controls and future
oriented controls.
Past-oriented controls:
Past-oriented control measure results once the
method. These are also known as post action controls.
They examine what has happened in the past for a

particular period. Examples of past-oriented controls

are accounting records, school grade reports etc.
These controls are used to plan future behaviour in
the light of post errors or successes. They can also be
used for rewarding, disciplining, training or promoting
individuals.
Future-oriented controls:
These are also known as feed-forward controls or
steering controls. These controls are designed to
measure results during the process, so that action are
often taken before the job is done or the period is
over.
Feed-forward management function warning-posts
mainly to direct attention instead of to guage samples
of such controls area unit income and funds flow
analysis, network designing etc that facilitate
managers to ascertain that they're going to have
issues in such areas of money or on time delivery
unless they take previous action.

Comparison of past-oriented and future-oriented

controls

UNIT 7
INSTITUTIONAL SUPPORT
Institutional Support:Different Schemes; TECKSOK;
KIADB; KSSIDC; KSIMC; DIC Single Window Agency;
SISI; NSIC; SIDBI;KSFC.
7.1 Institutional Support:Different Schemes; TECKSOK;
KIADB; KSSIDC; KSIMC;
Development schemes:
A vast network of field organisations and institutes
across the country operate according to the
aims,objectives and guidelines laid down by
Development Commissioner (MSME).

TECSOK:

TECSOK
is
a
multidisciplinary
management
consultancy
organization
promoted
by
the
Government of Karnataka to provide reliable
consultancy services in India. TECSOK has been
excelling its expertise in a wide range of services. The
package of services includes feasibility studies,
market research, valuation of assets, environment
impact studies, energy management and audit,
management
studies
like
corporate
plan,
reorganization and restructuring of enterprises, man
power planning, budgetary control systems, mergers
and
acquisitions,
investment
opportunities,
technology transfers, diagnostic studies and also
designing and organizing training programmes in all
related areas.
Of late TECSOK is also concentrating on studies
relating to Cleaner Production technologies and
methods. TECSOK has been considered by the
Government of Karnataka, Government of India, State
& Central Financial Institutions, Commercial Banks,
Asian Development Bank and a host of other
institutions of the Government and Private as the
recognized consultancy agency.
TECSOK has been recognized as the State Nodal
Agency by the Ministry of Food Processing Industries,
Govt of India to operate the Ministry's Promotional
Schemes in Karnataka.
The TECSOK consultancy is driven by top-notch
professionals from different disciplines; engineers,
management experts, economists and financial

consultants. TECSOK partners with reputed national

and multinational consultants, outsourcing expertise
for professional synergy. As an investor there are
many imponderables that will engage your mind. For
instance we would like to have reliable information on
the kind of product that would be feasible the location
for your industry, and the procedures for establishing
the industry. Other inputs you may require would be in
the area of market research, manpower planning,
technology, environmental issues etc.
TECSOK with its vast experience will provide you
valuable insights and practical solutions in all of these
areas and others in which you may need assistance.
With its range of services TECSOK offers a single
platform from which you can get all the inputs you
require.
TECSOK has been excelling its expertise in a wide
range of services.
U can rely on TECSOK for
i)Location Specific
opportunities.

identification

of

investment

ii)Assistance in obtaining statutory and procedural

clearances.
iii)Feasibility studies and environment impact studies.
iv)Preparation of detailed project reports as per
investment norms and financial norms..
V) Market survey and research.

Vi)Project implementation and turn key assistance.

Vii)Reorganization and restructuring of enterprises.
Viii)Valuation of assets, man
budgetary control system.
ix)Energy management
technology transfer.
X)Diagnostic
industries.

studies

&

and

power

audit,

planning

corporate

rehabilitation

&

plan,

of

sick

Xii)Designing and organizing training programmes.

Xiii)Since its inception, TECSOK has catalysed a large
number of industries throughout the province.
Xiv)Management
studies,
company
corporate plan,enterprise restructuring.

formation,

Xv)Port tariff study and related areas.

Xvi)Consultancy for agro- base industries as a Nodal
Agency of Government of India.
Xvii)Consultancy for merger/takeovers.
Xviii)Infrastructure development project reports.
KSSIDC:
INTRODUCTION:
The growth of Small Scale Industries in our country
since independence is rightly regarded as one of the

most significant features of planned economic

development. The very concept of small - scale
industries, as we know, was not in vogue on the eve of
independence. Rural and Cottage industries, which
constituted the indigenous sector of our industries,
were wide spread throughout the length and breadth
of our country. Various programmes to sustain,
modernise and further develop this group of industries
were initiated soon after the independence and the
modern small - scale industry scheme has gradually
emerged out of this programme. The Small Scale
Industries have provided opportunities for self
employment to educated young men and experienced
technicians from the middle level of society and
contributed full to the growth of industrial
entrepreneurship in our country.
Today small scale industries is regarded as power tool
for balanced regional economic development. These
achievements are primarily due to the dynamic
enterprising spirit of the small- scale industrialists
themselves. A positive programme for assistance of
small - scale industries was initiated towards the end
of 1954 on the basis of a suggestion made by the
international planning team sponsored by the Ford
Foundation at the request of Govt. of India.
Further on the basis of the recommendations of the
central small scale industries advisory board the state
level organisations to assist the small scale industries
for
procurement
of
scarce
raw
materials
establishment of industrial estates, etc, have been set
up in all states. KSSIDC is one of such Corporations,

established on 29thApril 1960.The registered office of

the Company started functioning at Bangalore in the
State of Karnataka.
The Company framed comprehensive and well defined Memorandum of Association and Articles of
Association which permit the Corporation to take up
any activity aimed at the rapid development of smallscale industry subject to the guidelines issued by the
Government from time to time and also as per Govt
order as under.
KIADB:
KIADB a pioneer agency with ISO 9001: 2000
Certification offers to entrepreneurs an unmatched
convenience of world- class infrastructure for their
new ventures and projects. KIADB rolls out a redcarpet runway to the world of prosperity by providing
quality facilities and services to its clients all over the
state of Karnataka .Come and be a part of our family.
Karnataka Industrial Areas Development Board
(KIADB) is a wholly owned infrastructure agency of
Government of Karnataka, set up under Karnataka
Industrial Areas Development Act of 1966.
This Board functions as per statutory provisions, rules
and regulations enacted there under. The Board
comprises of senior government officers in their exofficio capacities. The Board of members meet
regularly to take decisions and monitor the functions.
KIADB holds pride in being the first government

organisation in Karnataka to
certification in the year 1997.

obtain

ISO

9001

Now the KIADB is following ISO 9001:2000 module

covering
its
functions
of
Land
Acquisition,
Development and Allotment functions in Bangalore
Urban and Rural districts.
Aims and Objectives :
Promote rapid and orderly development of industries
in the state.
Assist in implementation of policies of government
within the purview of KIAD Act.
Facilitate for establishing infrastructure projects.
Function on corporate lines with No Profit No
Losspolicy.
Functions :
Acquire land and form industrial areas.
Provide all infrastructure to such industrial areas.
Acquire land for Single Unit Complexes.
Acquire land for Government agencies for their
schemes and infrastructure projects.
(Single Unit Complexes).
The Board also acquires land for infrastructure
projects of the Government. We promote projects of

public importance in joint venture with organizations

of international repute.The vision of KIADB and world
class infrastructure has made investors all over the
world take notice of Karnataka as the premier
destination for their startups and ventures.
Till date KIADB has formed 95 industrial areas spread
all over the State and acquired land for nearly 290
Single Unit Complexes ensuring balanced industrial
development in all regions with well thought of
infrastructures and unique features.
Infrastructures in Industrial Area
Few prominent industrial areas :
Peenya ,Electronic City, Export Promotion Industrial
Park (EPIP) in Bangalore.
Hebbal in Mysore.
Baikampady in Mangalore.
Tarihal in Dharwar.
Kakati in Belgaum.
Auto Complex in Shimoga.
World's leading Companies have rose up in glory on
the infrastructure set by KIADB. This apart KIADB has
envisaged several innovative projects up its sleeve
like Agro - Tech Parks,Apparel Park, Auto Parks,
Hardware Park, Bio- Tech Park, EPIPs, Special
Economic Zones etc.

Some of the projects of KIADB executed with high

degree of professionalism:
Acquisition of about 4316.25 acres of lands for
Bangalore International Airport Ltd .
Acquisition of about 1850 acres of lands for Harbour at
Tadri in Uttara Kannada Dist.
Acquisition of about 1958 acres of lands for M/s MRPL
at Mangalore and rehabilitation of about 610 displaced
families with modern infrastructure.
Acquiring & Developing of about 430 acres of land for
M/s Toyota in Bidadi at Bangalore Dist.
Functional units of KIADB :Acquisition Wing:
This wing conducts the proceedings of acquisition and
hands over the land to KIADB. Special Deputy
Commissioner heads acquisition wing and assisted by
Special Land Acquisition officers at zonal level. This is
an arm of Government which conducts the
proceedings. Board identifies land for development of
industrial areas for single unit complexes, projects &
schemes envisaged by Govern ment.
On ascertaining the suitability of land, notifications
under relevant provisions are issued under KIAD Act of
1966 with approval of Government. Thus the action of
acquisition of land is initiated.
Engineering Wing:

Engineering prepares a design & development plan

taking into consideration different parameters like:
Infrastructure requirements.
Statutory & Regulatory requirements.
Co- ordination with other agencies.
Chief Engineer and Chief Development Officer heads
Engineering assisted by Development Officers who are
in charge at the Zonal Offices. This wing of KIADB also
provides service to the allottees by approving building
plans, providing water supply connections, NOCs for
obtaining power connections from supply agencies
and addressing the grievances of allottees at
industrial
areas
in
the
matters
related
to
infrastructure.
Allotment Wing:
This is headed by Secretary assisted by Assistant
Secretaries
at
Zonal
Offices.
Requests
of
entrepreneurs in the matters of leasing, issuance of
absolute sale deed, issuance of NOCs for financial
assistance, needful clearances for change in activity,
change in constitution, maintenance of payment
records of allottees etc, are attended by allotment.
Accounts Wing:
Controller of Finance- The head of this department is
assisted by Senior Audit Officer, Accounts Officer,
Project Officer and Assistant Secretary (A&MIS). This
wing of KIADB is engaged in drawing of budgetary

proposals, project financing & planning. This also has

responsibility of monitoring & maintaining the process
related to mobilization of finance for projects,
preparation of final accounts and other activities of
KIADB .
Administration Wing:
Joint Director (Admn.) is the Head of this Department.
This
has
overall
responsibility
of
general
administration, human resources management, other
administrative and logistic matters. This ensures that
the employees of this board are abreast with
professionalism by providing trainings, refresher
courses etc., for better productivity in the
Organization.
KSIMC:
Karnataka Small Industries Marketing Corporation
(After Setting of Production Operations).
KSSIDC (then Mysore Small Industries Corporation) is
rendering services to the small sector in the State for
more than 40 years. Karnataka State Small
Industries Development Corporation Ltd, KSSIDC with
the objective of creating Market to SSI product
formulated a Sister Concern called KSIMC (Karnataka
State Industrial Marketing Corporation) with an
investment of 35 Lakhs. Till date the Company fared
well in catering the needs of 551 units to market their
products.

7.2 DIC Single Window Agency; SISI; NSIC; SIDBI;KSFC

Single Window Agency:
With a view to facilitate and expedite the various
clearances and Government approvals required by
entrepreneurs as also to promote investments in the
State, the Governor of Meghalaya is pleased to
constitute a Committee which will act as Single
Window Agency for all investments in the State.
The Committee will consists of the following
members :1. Chief Minister, Meghalaya Chairman.
2. Chairman, MeSEB, Meghalaya Member.
3. Principal Secretary, Revenue Department Member.
4. Commissioner & Secretary, Industries Department
Member.
5. Commissioner & Secretary, Tourism Department
Member.
6. Principal Chief Conservator of Forest Member.
7. Chairman, State Pollution Control Board Member.
8. Managing Director, M.I.D.C. Ltd Member.

9. Secretary General, C.I.M., Shillong Member.

10. Director of Industries,
Member Secretary.

Meghalaya,

Shillong

Chairman is also empowered to co-opt Member(s) for

a particular meeting whose presence is likely to
facilitate decisions.
I. The terms of reference of the Committee will be as
follows :
1. To facilitate the expeditious issue of all clearance /
approvals required from the various Department and
Agencies of the State Government to any
entrepreneur applying for the same and to assist
there in obtaining clearance from other bodies /
organisation in the State.
2. To assist entrepreneurs in obtaining
clearances
and
approvals
from
the
Government and its agencies.

various
Central

3. To take up with financial Institutions / Commercial

Banks, wherever required for expediting sanction and
disbursement of loans / working capital to prospective
entrepreneurs.
4. To facilitate and expedite on land matters for the
setting up of Industry.

5. To facilitate local entrepreneurs in having an

interface
with
Industrial
association,
Central
Government, Boards and Authorities etc.
6. To attend to all enquiries from all prospective
entrepreneurs relating to the law, procedures,
practices etc, governing investments in the State and
7. To continuously review the various clearance and
approvals required for investment in the State by
entrepreneurs, with a view to simplify them as also to
minimise procedural constraints to ensure flow of
investments in the State.
II. Member Secretary (Director of Industries) will
function as the nodal authority to receive and process
all reference made to the Committee and will also act
as Escort for intending entrepreneurs.
III. Regional Chief Conservator of Forest , Shillong will
also be requested to attend as a special invitee
whether so required.
IV. In case requiring urgent / immediate disposal,
Committee would take resolutions / decisions through
circulation.
V. In case where a member is unable to attend
meetings due to unavoidable circumstances, he would
depute a senior officer empowered to take decisions

on the issue which are to be considered in the

meeting.
Small Industries Service Institute (SISIs):
At the heart of all agencies dealing with development
of small industry is small industries development
organization, SIDO. It was originally know as central
small industries organization (CSIO). Attached to the
ministry, SIDO administers small industries service
institute (SISIs).
The small industries service institutes (SISIs) are setup one in each state to provide consultancy and
training to small and prospective entrepreneurs. The
activities of SISs are co -ordinate by the industrial
management training division of the DC, SSI office
(New Delhi). In all there are 28 SISIs and 30 Branch
SISIs set up in state capitals and other places all over
the country.
SISI has wide spectrum of technological, management
and administrative tasks to perform.
Functions of SISI:
1. To assist existing and prospective entrepreneurs
through technical and managerial counseling such as
help in selecting the appropriate machinery and

equipment, adoption of recognized

testing, quality performance etc;

standards

of

2. Conducting EDPs all over the country;

3. To advise the Central and State governments on
policy matters relating to small industry development;
4. To assist in testing of raw materials and products of
SSIs, their inspection and quality control;
5. To provide market information to the SISIs;
6. To recommend SSIs for financial assistance from
financial institutions;
7. To enlist entrepreneurs for partition in Government
stores purchase programme;
8. Conduct economic and technical surveys and
prepare techno - economic feasible reports for
selected areas and industries.
9. Identify the potential for ancillary development
through sub- contract exchanges;
10. Organize seminars, Workshops and Industries
Clinics for the benefit of entrepreneurs.
The Small Industries Service Institutes have been
generally organizing the following types of EDPs on
specialized courses for different target groups like

energy conservation, pollution control, Technology upgradation, Quality improvement, Material handling,
Management technique etc. as mention ed earlier.
General EDP for educated unemployed youth, exservice personnel etc. for a duration of four weeks. In
these
programmes,
classroom
lectures
and
discussions are held on issues such as facilities and
assistance available from State and Central
government agencies, banks, financial institutions and
National Small Industries Corporation.Apart from this,
exposure is given information regarding market
survey,
product
identification
and
selection,
technologies
involved,
management
of
small
enterprises, particularly in matters relating to financial
management, marketing, packaging and exports.
The participants also interact with successful small
scale entrepreneurs as a part of their experience
sharing Information of quality; possibilities of
diversification and expansion are also given.
The entrepreneurs are helped to prepare Project
Reports based on their own observations and studies
for obtaining financial assistance as may be required.
Such courses have benefitted many entrepreneurs to
set up units of their own choice.
KSFC:

KSFC is one of the fast track term lending financial

institutions in the country with assistance to over
1,63,643 units amounting to nearly Rs 10,465 crore
over the last 52 years in the State of Karnataka. KSFC
is one of the robust and professionally managed State
Financial Corporations.
The Infrastructure Sector is an integral part in the
economy of the nation and it is a catalyst in boosting
the development and economy of the country.
Realising this vital factor there is a national focus on
infrastructure development. Keeping the need and
potentiality in view, KSFC has decided to contribute in
this sector also. Hence, as part of the new initiative
and diversification process, has decided to take up
infrastructure development projects with public /
private participation. The Corporation initially focus
and identify valuable vacant lands in the prime
localities, to start with in and around Bangalore city,
owned by various Government Departments /
Governmental Agencies / Registered Societies/Trusts,
etc., and explore for joint development including SEZ.
The Corporation would take care of all the financial tie
ups for development of these properties. The
expected income out of different revenue models, will
be shared with the owners of the properties in
appropriate ratio on mutually agreeable terms, after
studying economics / viability. The joint venture

infrastructure will be of world class and state of art

technology. It could be IT park, Shopping Mall,
Commercial complex, SEZ, etc., depending upon the
location of the property and potentiality. This new
activity will ensure sustained cash flow for the
concerned owner of the property as well as our
Corporation by way of rentals and other earnings,
which will obviously be mutually beneficial to both the
institutions.
Accordingly a separate Infrastructure Development
Department (IDD) has been created and necessary
approval from SIDBI has also been obtained.
NSIC :
National Small Industries Corporation Limited is a PSU
established by the Government of India in 1955 It falls
under Ministry of Micro, Small & Medium Enterprises
of India. Promotes MSME.(Raw Material Support Also).
Recent
transition
of
industrial
climate
and
liberalization of total economic environment within the
country and abroad has witnessed tremendous
changes in the domestic as well as international
markets. These sudden changes have thrown up as
many opportunities as challenges to the small scale
enterprises everywhere. NSIC has been able to prove
its strength dynamically showing its progressive
attitude towards modernisation, upgradation of

technology, quality consciousness, strengthening

linkages with large and medium scale enterprises and
boosting exports.
NSIC has always been moving with the times and fine
tuning its schemes to the requirements of SS's in the
wake of ever-changing production techniques and
economic environment. It has been sensitizing the
SSIs to various technological issues through
dissemination of information, tech-missions abroad
and through seminars & conferences. NSIC has
initiated international programmes with focus on
enterprise to enterprise linkages and aiming at
internationalisation of Indian small enterprises.
Objectives of the NSIC:
1. Stimulated & Support
To develop new enterprises through financial,
marketing and Technology support schemes.
2. Sustenance
Raw material supply
Bill Financing.
Human resource development.
3. Growth.

Strategic alliances with institutions

International programmes.
Technology information dissemination and awareness
programmes.
The saga of small industries in India is alienably the
saga of the national small industries corporation
Limited.Presently there are more than 3 million small
and medium industrial enterprises in India large
number of which have competence for long term
bussiness relationships and who can supply more than
5000 products to the global community.
NSICs activities:
Hire purchase scheme.
Equipment Leasing.
Raw material Assistance.
Bill Financing.
Working capital finance.
Export development finance.
Marketing assistance.
Consortia approach.

Tender Marking.
Government stores purchase programme and single
point registration.
Product exports.
Project exports.
Technology expositions.
Exports to UN system.
Technical services and training.
KSIC technical services and centres.
SIDBI:
Small Industries Development Bank of India is a nonindependent financial institution aimed to aid the
growth and development of micro, small and mediumscale enterprises in India. Set up on April 2, 1990
through an act of parliament
Provision of Charter SIDBI was established on April 2,
1990. The Charter establishing it, The Small Industries
Development Bank of India Act, 1989 envisaged SIDBI
to be "the principal financial institution for the
promotion, financing and development of industry in
the small scale sector and to co-ordinate the functions
of the institutions engaged in the promotion and

financing or developing industry in the small scale

sector and for matters connected therewith or
incidental thereto.
Business Domain of SIDBI The business domain of
SIDBI consists of small scale industrial units, which
contribute significantly to the national economy in
terms of production, employment and exports. Small
scale industries are the industrial units in which the
investment in plant and machinery does not exceed
Rs.10 million . About 3.1 million such units, employing
17.2 million persons account for a share of 36 per cent
of India's exports and 40 per cent of industrial
manufacture. In addition, SIDBI's assistance flows to
the transport, health care and tourism sectors and
also to the professional and self-employed persons
setting up small-sized professional ventures. SIDBI
retained its position in the top 30 Development Banks
of the World in the latest ranking of The Banker,
London. As per the May 2001 issue of The Banker,
London, SIDBI ranked 25th both in terms of Capital
and Assets.
Schemes of SIDBI:
a. Direct finance schemes: SIDBI had been providing
refinance to State Level Finance Corporations / State
Industrial Development Corporations / Banks etc.,
against their loans granted to small scale units. Since

the formation of SIDBI in April, 1990 a need was felt;

representations were made that SIDBI being the
principal financial institution for the small sector,
should take up the financing of SSI projects directly on
a selective basis. So it was decided to introduce direct
assistance schemes to supplement the other available
channels of credit flow to the small industries sector.
Since then, SIDBI has evolved itself into a supplier of a
range of products and services to the Small & Medium
Enterprises [SMEJ sector.
b. Refinance: Refinance scheme is introduced for
catering to the need of funds of Primary Lending
Institutes for financing small-scale industries. Under
the scheme, SIDBI grants refinance against term loans
granted by the eligible PLIs to industrial concerns for
setting up industrial projects in the small scale sector
as also for their expansion / modernization /
diversification. Term loans granted by the PLIs for
other specified eligible activities / purposes are also
eligible for refinance.
c. International finance: The main objective of the
various International Finance schemes is to enable
small-scale
industries
to
raise
finance
at
internationally competitive rates to fulfill their export
commitments. The financial assistance is being
offered in USD and Euro currencies. Assistance in
Rupees is also considered, independent of foreign

currency limits. SIDBI has a license to deal in foreign

exchange as a "restricted" Authorized Dealer (i.e.
SIDBI confines its foreign exchange activities only to
its own exposures and to exposures for its customers.
The Mumbai Head Office (MHO) of SIDBI operates as a
Category 'A' branch that maintains foreign currency
positions, nostro account with foreign correspondent
banks.
d. Government subsidy schemes:
Food processing
Textile industry
e. Other schemes
Textile industry
f. Promotional activities
Rural Industries Programme (RIP)
Promotional and Development Activities
Management Development Programmes
Entrepreneurship Development Programme (EDP)
Fixed deposit scheme

ART-B ENTREPRENEURSHIP

UNIT 5
ENTREPRENEUR

Entrepreneur:Meaning of Entrepreneur; Evolution of

.the Concept; Functions of an Entrepreneur, Types of
Entrepreneur, Entrepreneur - an emerging. Class.
Concept
of
Entrepreneurship
Evolution
of
Entrepreneurship, Development of Entrepreneurship;
Stages
in
entrepreneurial
process;
Role
of
entrepreneurs
in
Economic
Development;
Entrepreneurship in India; Entrepreneurship - its
Barriers.

5.1 Entrepreneur:Meaning
Evolution of .the Concept;

of

Entrepreneur;

Meaning of Entrepreneur
An entrepreneur is an enterprising individual who
creates capital via risk and/or initiative. The term was
originally a loanword from French and was initially
defined by the Irish-French economist Richard
Cantillon.
Entrepreneur in English is a term applied to a person
who is willing to help launch a new venture or
enterprise and accept full responsibility for the
outputs. Jean-Baptiste Say, a French economist, is
believed to have coined the word "entrepreneur" in
the 19th century he defined an entrepreneur as "one
who undertakes an enterprise, especially a contractor,
acting as intermediatory between capital and labour".
The Concept Of Entrepreneur

Normally an entrepreneur is a person responsible for

setting up a business or an enterprise. He has the
initiative , skill for innovation and who looks for high
achievements. He is a catalytic agent of change and
works for the good of people. He puts up new green
field projects that create wealth, open up many
employment opportunities and leads to growth of
other sectors.

According to Peter Drucker Entrepreneurship is

defined as a systematic innovation, which has of the
purposeful and organized search for changes, and it is
the systematic analysis of the opportunities such
modifications might offer for economic and social
innovation.
Entrepreneurship
is
a
dynamic
process
of
change,vision, and creation. It needs an application of
energy and passion towards the creation and
implementation of new ideas and creative solutions.
Essential ingredients include the willingness to take
determined risks in terms of time, equity, or career;
the ability to formulate an effective venture team; the
creative skill to marshall needed resources; the
fundamental skills of building a solid business plan;
and, finally, the vision to recognize opportunity where
others see chaos, contradiction, and confusion.

5.1.1 Functions of an Entrepreneur.

The important functions performed
entrepreneur are listed below:

by

an

1. Innovation:
An entrepreneur is basically an innovator who tries to
develop new technology, products, markets, etc.
Innovation might involve doing innovations or doing
existing things differently. An entrepreneur uses his
creative faculties to do new things and exploit
opportunities in the market. He does not believe in
status and is always in search of change.
2. Assumption of Risk:
An entrepreneur, by definition, is risk taker and not
risk shirker. He is always prepared for assuming losses
that might arise on account of new ideas and projects
undertaken by him. This willingness to take risks
allows an entrepreneur to take initiatives in doing new
things and marching ahead in his efforts.
3. Research:
An entrepreneur is a practical dreamer and does a lot
of ground-work before taking a leap in his ventures. In
other words, an entrepreneur finalizes an idea only
after considering a variety of options, analyzing their
strengths and weaknesses by applying analytical
techniques, testing their applicability, supplementing
them with empirical findings, and then choosing the
best alternative. It is then that he applies his ideas in

practice. The selection of an idea, thus, involves the

application
of
research
methodology
by
an
entrepreneur.
4. Development of Management Skills:
The work of an entrepreneur involves the use of
managerial skills which he develops while planning,
organizing, staffing, directing, controlling and
coordinating the activities of business. His managerial
skills get further strengthened when he engages
himself in establishing equilibrium between his
organization and its environment.
However, when the size of business grows
considerably,
an
entrepreneur
can
employ
professional managers for the effective management
of business operations.
5. Overcoming Resistance to Change:
New innovations are generally opposed by people
because it makes them change their existing behavior
patterns. An entrepreneur always first tries new ideas
at his level.
It is only after the successful implementation of these
ideas that an entrepreneur makes these ideas
available to others for their benefit. In this manner, an
entrepreneur paves the way for the acceptance of his
ideas by others. This is a reflection of his will power,
enthusiasm and energy which helps him in
overcoming the societys resistance to change.

6. Catalyst of Economic Development:

An entrepreneur plays an important role in
accelerating the pace of economic development of a
country by discovering new uses of available
resources and maximizing their utilization.

5.2 Types of Entrepreneur, Entrepreneur - an

emerging. Class. Concept of Entrepreneurship.
Types of Entrepreneur
1. Innovative entrepreneurs:
These entrepreneurs have the ability to think newer,
better and more economical ideas of business
organization and management. They are the business
leaders
and
contributors
to
the
economic
development of a country.
Inventions like the introduction of a small car Nano
by Ratan Tata, organized retailing by Kishore Biyani,
making mobile phones available to the common may
by Anil Ambani are the works of innovative
entrepreneurs.
2. Imitating entrepreneurs:
These entrepreneurs are people who follow the path
shown by innovative entrepreneurs. They imitate
innovative entrepreneurs because the environment in
which they operate is such that it does not permit
them to have creative and innovative ideas on their
own.

Such entrepreneurs are found in countries and

situations
marked
with
weak
industrial
and
institutional base which creates difficulties in initiating
innovative ideas.
In our country also, a large number of such
entrepreneurs are found in every field of business
activity and they fulfill their need for achievement by
imitating the ideas introduced by innovative
entrepreneurs.
Development of small shopping complexes is the work
of imitating entrepreneurs. All the small car
manufacturers now are the imitating entrepreneurs.
3. Fabian entrepreneurs:
The dictionary meaning of the term fabian is a
person seeking victory by delay rather than by a
decisive battle. Fabian entrepreneurs are those
individuals who do not show initiative in visualizing
and implementing new ideas and innovations wait for
some development which would motivate them to
initiate unless there is an imminent threat to their
very existence.
4. Drone entrepreneurs:
The dictionary meaning of the term drone is a
person who lives on the labor of others. Drone
entrepreneurs are those individuals who are satisfied
with the existing mode and speed of business activity
and show no inclination in gaining market leadership.
In other words, drone entrepreneurs are die-hard

conservatives and even ready to suffer the loss of

business.
5. Social Entrepreneur:
Social entrepreneurs drive social innovation and
transformation in various fields including education,
health, human rights, workers rights, environment
and enterprise development.
They undertake poverty alleviation objectives with the
zeal of an entrepreneur, business practices and dare
to overcome traditional practices and to innovate. Dr
Mohammed Yunus of Bangladesh who started Gramin
Bank is a case of social entrepreneur.
Concept of Entrepreneurship:
The word entrepreneur is derived from the French
verb enterprendre, which means to undertake. This
refers to those who undertake the risk of new
enterprises. An enterprise is created by an
entrepreneur. The process of creation is called
entrepreneurship.
Entrepreneurship is a process of actions of an
entrepreneur who is a person always in search of
something new and exploits such ideas into gainful
opportunities by accepting the risk and uncertainty
with the enterprise.
5.3 Evolution of Entrepreneurship

An entrepreneur is an enterprising individual who

creates capital through risk and initiative. The term
was originally a loanword from French and was first
defined by the Irish-French economist Richard
Cantillon. Entrepreneur in English is a term applied to
a person who is willing to help launch a new venture
or enterprise and accept full responsibility for the
outcome. Jean-Baptiste Say, a French economist, is
believed to have coined the word entrepreneur in
the 19th century. He defined an entrepreneur as one
who undertakes an enterprise, especially a contractor,
acting as intermediary between capital and labour.
Pickle & Abrahamson (1990) introduced a compact
definition of an entrepreneur: An entrepreneur is one
who organizes and manages a business undertaking,
assuming the risk, for the sake of profit. The
entrepreneur evaluates perceived opportunities and
strives to make the decisions that will enable the firm
to realize sustained growth.
The entrepreneur leads the firm or organization and
also demonstrates leadership qualities by selecting
managerial staff. It is important to note that
management skill and strong team building abilities
are essential leadership attributes for successful
entrepreneurs and the growth of the business.

From the viewpoint of growth-oriented innovative

companies, one of the best definitions of
entrepreneurship is found in Ronstadt (1984):
Entrepreneurship is the dynamic process of creating
incremental wealth. The wealth is created by
individuals who assume the major risks in terms of
equity, time and career commitment to provide value
for some product or service. The product or service
may or may not be new or unique but value must
somehow be infused by the entrepreneur by receiving
and allocating the necessary skills and resources.
Entrepreneurship is an essential element for economic
progress as it manifests its fundamental importance in
different ways by:
Identifying,
opportunities;

assessing

and

exploiting

business

Creating new firms and/or renewing existing ones by

making them more dynamic; and
Driving the economy forward through innovation,
competence, job creation and by generally improving
the wellbeing of society.
Entrepreneurship is the active process of recognizing
an economic demand in an economy, and supplying
the factors of production (land, labor and capital) to

satisfy that demand, usually to generate a profit. High

levels of poverty combined with slow economic growth
in the formal sector have forced a large part of the
developing worlds population into self-employment
and informal activities. But this is not necessarily
negative; micro enterprises contribute significantly to
economic growth, social stability and equity.
The sector is one of the most important vehicles
through which low-income people can escape poverty.
With limited skills and education to compete for
formal sector jobs, these men and women find
economic opportunities in micro enterprises as
business owners and employees. If successful,
entrepreneurship is likely to result in a small- to
medium-enterprise (SME). They include a variety of
firms; village handicrafts makers, small machine
shops, restaurants, and computer software firms etc.
that possess a wide range of sophistication and skills,
and operate in very different markets and social
environments.
5.3.1 Development of Entrepreneurship
Entrepreneurship development is concerned with the
study of entrepreneurial behaviour, the dynamics of
business set-up, development and expansion of the
enterprise. Entrepreneurship development (ED) refers
to the process of enhancing entrepreneurial skills and

knowledge through structured training and institutionbuilding programs. It basically aims to enlarge the
base of entrepreneurs in order to hasten the pace at
which new ventures are created. This accelerates
employment generation and economic development.
Entrepreneurship development focuses on the
individual who wishes to start or expand a business.
Small and medium enterprise (SME) development, on
the other hand, it also focuses on developing the
enterprise, whether or not it employs or is led by
individuals who can be considered entrepreneurial.
Furthermore,
entrepreneurship
development
concentrates more on growth potential and innovation
than SME development does. However, many of the
lessons learned from experiences in both types of
development are similar.
Entrepreneurship is promoted to help alleviate the
unemployment problem, to overcome the problem of
stagnation and to increase the competitiveness and
growth of business and industries. Various attempts
have been made to promote and develop
entrepreneurship. By giving specific assistance to
improve the competence of the entrepreneur and his
enterprise so as to enhance his entrepreneurial
objectives and accommodate more people to become
entrepreneurs as well.

5.4 Stages In Entrepreneurial Process

1) CONVICTION
2) IDEA
3) CONCEPT
4) VENTURE
5) BUSINESS
6) SUSTAINABLE BUSINESS
Stage 1: CONVICTION
No matter the stage of the business when an
individual begins his/her entrepreneurial journey,
every entrepreneur should address his/her conviction
to be an entrepreneur.
This sounds trivial, but I believe it is the more
important step in the process.
It should be the first step; however, many
entrepreneurs wait until the VENTURE stage to
address it.
This may lead to grave problems.

In the CONVICTION stage, an entrepreneur needs to

figure out if he/she has the conviction to withstand the
fundamental issues of entrepreneurship.
Stage 2: IDEA
The IDEA stage is the simplest stage.
Everyone has an idea for a business.
This is also the most fun stage because the cost is
zero and the excitement level high. Of course, the
IDEA stage is the basis for every other stage so it
cannot be dismissed; however, as an entrepreneur,
we should never con fuse an "idea" for a "concept".
As we will see in the next step, a concept has much
more structure than an idea and subsequently
warrants a different concerns and decision Making.
Stage 3: CONCEPT
As mentioned above, a concept is characterized by
structure.
In the CONCEPT stage, we take our idea and employ a
certain intellectual rigor which includes:
- Extensive market research
- Development of the business model

- Conceptualization of the type of the team required to

execute
- Engagement of informal and formal advisors.
Stage 4: VENTURE
This is the most challenging stage of the business and
for many entrepreneurs the most fun...well at least in
the beginning.The VENTURE stage is characterized by
significant investment. This investment typically
comes in two forms: Money and time.
In most cases, as the entrepreneur, it is "your" money
and "your" time; and those can often be significant.
Stage 5: BUSINESS
The BUSINESS stage is where all entrepreneurs strive
to be.
This is the stage where we have revenues that are
commensurate with our expenses.
Of course, there might be unprofitable months or
years, but in general, the business can support itself
with little outside capital.
This is the stage where we are most likely to find
investors.
Stage 6: SUSTAINABLE BUSINESS

Although most entrepreneurs are satisfied to build a

Business, they should strive to become a Sustainable
Business.
There are unique challenges to creating a sustainable
business and it can be defined in different ways.
It is typically characterized by time.
Ventures that last 10+ years may be thought of as
sustainable; however, the real challenge is for a
business to outlast the involvement of its founders.
That is a more relevant definition of a sustainable
business.
5.4.1 Role of entrepreneurs in Economic Development
An entrepreneur is person that finds, evaluates and
develop an opportunity by overcoming the problem
that arise in developing and implementing something
new by way of Innovation, this is crucial in economic
development of a country like India which faces very
complexing problems entrepreneurs like cleanliness,
over crowded cities, safe drinking water, basic
infrastructures and medical facilities.

A government and society has to encourage

entrepreneurs to adopt to new ways of solving the
problem by providing financial and other limited
resources for economic growth of the country.
An entrepreneur has to take responsibility of solving
the problems, and equip himself oe herself with
qualities like Self Directed to achieve Goals, Risk
Taker, Able to Identify or create an opportunity,
Planner, Stress
Taker, Ability
to deal with
uncertainties, Independent, Flexible, Self Confident,
Motivator.
Hence an entrepreneur can contribute to economic
growth of country in following ways
IMPORTS: An Entrepreneur can decrease burden of
Foreign Exchange, by reducing import of costly and
capital goods from other countries by making
products in India.

EXPORTS: A person can explore new markets for his

or her products to earn foreign exchange, helping
increasing cash reserve into the country.
COST : Reducing the cost of products and services
EFFICIENCY: Efficient
recycling of goods

treatment

of

waste

EMPLOYMENT Generating
Employment
economic prosperity of workers and staff.

and
and

SKILL
DEVELOPMENT Encouraging
skill
development of employees and staff for a competitive
workforce at world level.
ENTREPRENEURSHIP IN INDIA
Sramana is doing a series on Entrepreneurship
Innovation in India for Forbes and requested my
perspective about the same. She/he chose to write
down my thoughts as a post and seek out your
thoughts about it as well.
When it comes to entrepreneurship in India, for the
longest time now, it seems that most of us have been
rehashing, repeating and regurgitating the same
things over and over again:
Lack of funding

 Revamp Education system

No ecosystem
Indian mindset and culture
No product companies
Bureaucratic red - tape and many other such
reasons.
Its time we really took a deep, hard look at what is the
current state of entrepreneurship in India, what is
broken and how can we really fix it.
In all fairness, she/he not on ground zero. And so it
may seem as inappropriate to many that she/he speak
of entrepreneurship in India while residing in the US.
we might very well this is my opinions expressed
below based on the same grounds, and in that case,
she/he welcome your perspective hopefully we can
have a healthy discussion via the comments.
In my defense, even though Im not at ground zero, I
have been closely monitoring the startup and
entrepreneurship scene in India over the last couple of
years. She/he has talked to lots of Indian
entrepreneurs, tech enthusiasts and VCs over this
time enough to form an opinion.

If someone whos totally ignorant about the Indian

market walks up to me and asks me about
entrepreneurship in India their answer to them would
be that its more hype than happening. The awareness
about entrepreneurship is definitely increasing
incredibly, but not enough converts yet. Lots of
wannapreneurs, but few actual entrepreneurs.Again,
my goal is not to ridicule or point fingers, but rather
narrow down on whats broken.
5.4.2 Entrepreneurship - its Barriers.
Procrastination: Procrastination they say is the thief
of time. There is no tomorrow because it never comes.
What we do today will affect how your tomorrow will
be. Out of laziness, resistance and complacency
entrepreneurs are forced to shift activities.
If we want to draw a business plan it must be now; if
we want to write a proposal, it must be now; if we
should register your business, it must be now; if we
must quit a job and start our own business it should
be now.
A lot of entrepreneurs have great vision and dreams
but a lot are in the someday island. They hope to
achieve them someday. They never get there in actual
fact.

Write the dream on paper, figure out areas of strength

and areas of resistance, set time against your dreams.
When we have done this, employ your passion and go
get it.
Tying your dreams to age: Age is nothing but a
number. Whatever we want to do has nothing to do
with our age. Its all about attitude, level of exposure,
knowledge and the self - will. The fact that the CEO of
a company achieved success at the age of 50 does
not mean entrepreneurial success is tied to age 50.
Today there are a lot of young entrepreneurs who
have become billionaires. Mark Zuckerberg of
facebook.com is a typical example; a billionaire at age
24 as at 2010. Dont allow our age to limit we in the
kinds of dreams we have and your pursuit for
achievement. Dream as wide as we can, dont be
deterred by how insufficient we may be. As we step
out to achieve your goals, all we need shall fall into
place.
Following the status quo: There is no perfect
system. What worked out ten years ago has no place
today. The world is fast- changing and so is the
business environment. The Internet has made the
world smaller than was thought decades ago.
Businesses are using the power of the Internet to
reach out to their clients. As an entrepreneur, consider

the use of social media platforms like Facebook,

Twitter and My space to reach out to your prospective
clients at no cost. Flow with the time and create the
necessary adjustment to be able to enjoy the benefits
that comes with a change.

UNIT 6
SMALL SCALE INDUSTRIES
Small Scale Industries:Definition; Characteristics;
Need and rationale; Objectives; Scope; role of SSI in
Economic Development. Advantages of SSI Steps to
start and SSI - Government policy towards SSI;
Different Policies of SSI; Government Support for SSI
during 5 year plans. Impact of Liberalization,
Privatization, Globalization on SSI Effect of WTO/GATT
Supporting Agencies of Government for SSI,
Meaning,Nature of support; Objectives; Functions;
Types of Help; Ancillary Industry and Tiny Industry
(Definition Only)

6.1 Small Scale Industries:Definition; Characteristics;

Definition:
The official definitions of a small scale unit are as
follows:
(i) Small-Scale Industries:
These are the industrial undertakings having fixed
investment in plant and machinery, whether held on
ownership basis or lease basis or hire purchase basis
not exceeding Rs. 1 crore.
(ii) Ancillary Industries:
These are industrial undertakings having fixed
investment in plant and machinery not exceeding Rs.
1 crore engaged in or proposed to engage in,
(a) The manufacture of parts, components, subassemblies, tooling or intermediaries, or
(b) The rendering of services supplying 30 percent of
their production or services as the case may be, to
other units for production of other articles.
(iii) Tiny Units:
These refer to undertakings having fixed investment
in plant and machinery not exceeding Rs. 23 lakhs.
These also include undertakings providing services
such as laundry, Xeroxing, repairs and maintenance of
customer equipment and machinery, hatching and

poultry etc. Located m towns with population less than

50,000.
(iv) Small-Scale Service Establishments:
These mean enterprises engaged in personal or
household services in rural areas and town with
population not exceeding 50000 and having fixed
investment in plant and machinery not exceeding Rs.
25 lakhs.
(v) Household Industries:
These cover artisans skilled craftsman and technicians
who can work in their own houses if their work
requires less than 300 square feet space, less than 1
Kw power, less than 5 workers and no pollution is
caused. Handicrafts, toys, dolls, small plastic and
paper products electronic and electrical gadgets are
some examples of these industries.
Characteristics of Small-Scale Industries:
Following are the characteristics of some industries
which identify them as small - scale industries:
1. Labour intensive:
Small-scale industries are fairly labour intensive. They
give an economic solution by creating employment
opportunities in urban and rural areas at a relatively
low cost of capital investment.
2. Flexibility:

Small- scale industries are flexible in their operation.

They adopt quickly to various factors that play a large
part in daily management. Their flexibility makes
them best suited to constantly changing environment.
3. One-man show:
A small - scale unit is usually a one- man show. It is
mostly set up by individuals. Even some small units
are run by partnership firm or company, the activities
are mainly carried out by one of the partners or
directors. Therefore,' they provide an outlet for
expression of the entrepreneurial spirit. As they are
their own boss, the decision making process is fast
and at times more innovative.
4. Use of indigenous raw materials:
Small - scale industries use indigenous raw materials
and promote intermediate and capital goods. They
contribute to faster balanced economic growth in a
transitional economy through Decentralization and
dispersal of industries in the local areas.
5. Localized operation:
Small - scale industries generally restrict their
operation to local areas in order to meet the local and
regional demands of the people. They cannot enlarge
their business activities due to limited resources.
6. Lesser gestation period:
Gestation period is the period after which the return or
investment starts. It is the time period between

setting the units and commencement of production.

Small- scale industries usually have a lesser gestation
period than large industries. This helps the
entrepreneur to earn after a short period of time.
Capital will not be blocked for a longer period.
7. Educational level:
The educational level of the employees of small
industries is normally low or moderate. Hardly there is
any need of specialized knowledge and skill to operate
and manage the SSI.
8. Profit motive:
The owners of small industries are too much profit
conscious. They always try to keep high margins in
their pricing. This is one of the reason for which the
unit may lead to closure.
6.2 Need and rationale; Objectives; Scope; role of SSI
in Economic Development.
Need and rationale
Small Scale Industries may sound small but actually
plays a very important part in the overall growth of an
economy. Small Scale Industries can be characterized
by the unique feature of labor intensiveness. The total
number of people employed in this industry has been
calculated to be near about one crore and ninety lakhs
in India, the main proponents of Small scale
industries.

The importance of this industry increases manifold

due to the immense employment generating
potential. The countries which are characterized by
acute
unemployment
problem
especially
put
emphasis on the model of Small Scale Industries . It
has been observed that India along with the countries
in the Indian continent have gone long strides in this
field
Objectives of Small Scale Industries:
The objectives of small scale industries are:
1. To create more employment opportunities with less
investment.
2. To remove economic backwardness of rural and less
developed regions of the economy.
3. To reduce regional imbalances.
4. To mobile and ensure optimum utilization of
unexploited resources of the country.
5. To improve standard of living of people.
6. To ensure equitable distribution of income and
wealth.
7. To solve unemployment problem.
8. To attain self-reliance.
9. To adopt latest technology aimed at producing
better quality products at lower costs.

ROLE OF SSI IN ECONOMIC DEVELOPMENT

The basic objective underlying development of a small
scale industry is increase in supply of manufactured
goods, promotion of capital formation,, development
of indigenous entrepreneur talent, skills and to create
wider employment opportunities.
In addition to these objectives of SSI includes Socio
economic development goals such as decentralization
and dispersal of manufacturing activities from
metropolitan areas to rural areas, reduction of
regional economic imbalances within the country.
In Indian economy, cottage and small scale industries
have significant role to play. With increase in pace of
industrialization and sophistication, a small scale
industry can efficiently develop a new production
method, processes and product in short time .
with
up
gradations,
professional
business
management, new skill development, and financial
support from government and partners. Hence in nut
shell the role of SSI can be summarized as follows

6.2.1 Advantages of SSI Steps to start and SSI

This industry is especially specialized
production of consumer commodities.

in

the

Small scale industries can be characterized with the

special feature of adopting the labor intensive
approach for commodity production. As these
industries lack capital, so they utilize the labor power
for the production of goods.
The main advantage of such a process lies in the
absorption of the surplus amount of labor in the
economy who were not being absorbed by the large
and capital intensive industries. This, in turn, helps
the system in scaling down the extent of
unemployment as well as poverty.
It has been empirically proved all over the world that
Small Scale Industries are adept in distributing
national income in more efficient and equitable
manner among the various participants in the process

of good production than their medium or larger

counterparts.
Small Scale Industries help the economy in promoting
balanced development of industries across all the
regions of the economy.
This industry helps the various sections of the society
to hone their skills required for entrepreneurship.
Small Scale Industries act as an essential medium for
the efficient utilization of the skills as well as
resources available locally.
Small Scale Industries enjoy a lot of help and
encouragement from the government through
protecting
these
industries
from
the
direct
competition of the large scale ones, provision of
subsidies in the form of capital, lenient tax structure
for this industry and many more.
6.3 Government policy towards SSI; Different Policies
of SSI;
The basic objective underlying development of a small
scale industry is increase in supply of manufactured
goods, promotion of capital formation,, development
of indigenous entrepreneur talent, skills and to create
wider employment opportunities.
In addition to these objectives of SSI includes Socio
economic development goals such as decentralization
and dispersal of manufacturing activities from
metropolitan areas to rural areas, reduction of

regional economic imbalances within the country.

Thus government has numerous policies towards
development of SSI, some of these are:
Equity Participation Upto 25% by Foreign or India
Companies
Relicensing of various sectors
Promote with Finance, Technology, Marketing, Land
banks, capital Equipment Finance and Lease of
POWER, ELECTRICITY
Link Backward areas and Classes to national and
International Economic Development
Promote Innovation, Export and International and
National Competitiveness
Promotes (SUBSIDIES) Creating Wealth
Modernization, Tapping Resources.
Import Substitution consultancy to SSI by opening
Tool ROOMS , Design Institutions.
DIFFERENT POLICIES OF SSI
Industrial Policy, 1977
The policy laid out that its main thrust will be on
effective promotion of cottage and small industries
widely dispersed in rural areas and small towns. The
policy had the following salient features:
1. Classification of small sector in three categories:

(i) Small Scale Industries

(ii) Tiny Units
(iii) Cottage and household industries which provide
self-employment in large numbers.
2. Reservation of production of 504 items in the small
scale sector.
3. Establishment of District Industries Centers (DICs)
in all districts of the country to serve as a focal point
of development for small and cottage industries.
4. Special marketing services to be provided like
product standardization, quality control etc. Other
than these measures, the policy also targeted to meet
some objectives like increased employment, improved
techniques of production, ensuring more suitable
distribution of national income, balanced regional
development, promotion of Khadi and Village
Industries (KVIC), promotion of indigenous technology.
Industrial Policy, 1980
Industrial Policy of 1980 emphasized the need for
intensifying the need for promotion of small industries
through integrated industrial development and
fostering complementarity between large and small
sectors. Its features were:
(i) Definition of small scale, tiny units and ancillaries
units was redefined;

(ii) The District Industries Centers (DICs) were

replaced by nucleus plants in each industrially
backward district to promote cottage and small
industries.
The nucleus plants were to concentrate on assembling
the products of ancillary units and to produce inputs
needed by large number of small units;
(iii) Reservations of items continued
(iv) Financial support to small units was strengthened
(v) Village industries including handloom, handicrafts,
khadi etc. received greater attention.
(vi) The policy also measured to build up buffer stocks
of critical inputs. Other than these salient features,
the policy also ensured the balanced growth of large,
medium, small and cottage industries.
The Policy also had primary objective to optimally
utilize the installed capacity, higher employment
generation, removal of regional balances, consumer
protection against high price and bad quality,
prevention of sickness of units, merger of sick units
with healthy ones etc.
6.3.1 Government Support for SSI during 5 year plans.
The target for industrial growth in the Ninth Plan was
set at 8.2 per cent. The major focus of the plan was on
the building of adequate infrastructural facilities and
also improving the 'quality' infrastructure.

To promote foreign direct investment, the plan

proposed to increase the number of industries in
which automatic approval would be granted. Special
steps were envisaged to encourage industries in
backward areas.It aimed to 'priorities' the efforts on
the large number of Growth Centers under
implementation so that maximum benefits can be
obtained from the investments in these centers in the
shortest possible time. The Plan advocated a number
of steps for the industrial development of the North
Eastern Region.
The plan divided Public Sector Enterprises (PSEs) into
three categories:
(i) Profit making PSEs,
(ii) PSEs making only marginal profits or losses, and
(iii) PSEs incurring substantial losses. The Government
categorized PSEs as Navratnas and 97 as Miniratnas
amongst the first category which will be provided
increased financial and managerial autonomy. The
second category of PSEs would be provided limited
budgetary support and assistance to enable them to
stand on their own feet. The Plan advocated for taking
'hard decisions' in case o f third category of PSEs.
In the field of small - scale industries, the Ninth Plan
advocates dereservation. This will help a number of
small scale units to upgrade their technology, improve
the quality of their products, expand the scale of their
operations and boost their exports.

Since the biggest problem facing the small - scale

industries is the inadequate availability of credit, the
Plan proposed a number of steps to mitigate this
problem.
The small-scale industries sector plays a vital role in
the growth of the country. It contributes almost 40% of
the gross industrial value added in the Indian
economy. It has been estimated that a million Rs. of
investment in fixed assets in the small scale sector
produces 4.62 million worth of goods or services with
an approximate value addition of ten percentage
points. The small-scale sector has grown rapidly over
the years.
The growth rates during the various plan periods have
been very impressive. The number of small-scale units
has increased from an estimated 0.87 million units in
the year 1980-81 to over 3 million in the year 2000.
From 1947 to 1994, General Agreement on Trade and
Tariff (GATT) was the forum for negotiating lower
customs duty rates and other trade barriers. The
World Trade Organization (WTO) was established on
1st January 1995.
When the GATT came into WTOs umbrella, it has
annexes dealing with specific sectors such as
agriculture and textiles, and with specific issues such
as State Trading, Product Standards, Subsidies and
Actions taken against dumping.

The WTO has 148 members, accounting for over 97%

of world trade. Around 30 others are negotiating
membership.
WTO aims to develop the countrys economy by
encouraging its export among the member countries.
Further, it facilitates for availing new technologies
from various countries at a lower cost. In this
connection, this paper focuses on the positive role
played by the WTO in the globalization scenario.
6.4
Impact
of
,Globalization on SSI

Liberalization,

Privatization

Before the introduction of new economic reforms in

1991 following the inevitable globalization, the SSI
sector was overprotected. The small scale industry
never had a strong desire to grow to medium and
large scale because of the benefits of protection given
to it.
Many of the policies also discouraged the growth of
small scale units into large ones and had a stunting
effect on manufacturing, employment and output
growth. With the globalization, the SSIs are now
exposed to sever competition both from large scale
sector, domestic and foreign and MNCs. The effect of
globalization can be summarized as below.
(1) The new policies of the government towards
liberalization and globalization without ensuring the
interest or priority of small-scale sector resulted in
poor growth rate of SSI sector. The SSI sector has
suffered because of the lending institutions and

promotional agencies, whose main agenda is to serve

big units and multinationals.
(2) The problems of SSI in liberalized environment
have
become
multidimensional
delay
in
implementation of project, inadequate availability of
finance and credit, marketing problems, cheap and
low quality products, technological obsolescence, lack
of infrastructural facilities, deficient managerial and
technical skills, to name some.
(3) Globalization resulted in opening up of markets,
leading to intense competition. For example, the
World Trade Organization (WTO) regulates multilateral
trade, requiring its member countries to remove its
import quotas, restrictions and reduce import tariffs.
India was also asked to remove quantitative
restrictions on import by 2001 and all export subsidies
by 2003. As a result every enterprise in India whether
small-scale or large scale has to face competition. The
process was initiated for small-scale units by placing
586 of its 812 reserved items on the open general
license list of imports.
(4) With the removal of restrictions of foreign direct
investment, multinational companies entered India
which further intensified the competition in the
domestic market. The 1990s witnessed the entry of
multinational
companies
in
areas
such
as
automobiles, electronics and IT based sectors. In the
changed
environment
after
globalization
and
liberalization, the policies and projects for the SSI

sectors will have to be effective and growth oriented

(not just protecting) so as to achieve competitiveness.
In order to protect, support and promote small
enterprises, a number of protective and promotional
measures have been undertaken by the central
government.
The promotional measures cover the following:
Industrial extension services
Institutional support in respect of credit facilities
Provision of developed sites for construction of
sheds
Provision of training facilities
Supply of machinery on hire purchase terms
Assistance for domestic marketing as well as
exports
Special intensive for setting up enterprises in
backward areas
Technical consultancy and financial assistance for
technological upgradation
6.4.1 Globalization on SSI Effect of WTO/GATT
Small Scale Industries (SSIs) are the pillars of Indias
industrial economy. The SSIs chief aims are:

To Remove the regional disparities, To facilitate for the

Equitable distribution of national income and wealth
To earn the Return on Investment in shorter period To
produce some consumption goods and essential
commodities.
As the SSIs consume local resources, the growth of
SSIs was quite appreciable at the dawn of new
century. It is evidential from the fact that there were
over 32 lakhs Small Scale Units in the organized
sector as on 31st March 2000 (Naik: 2002) &
(Economic Survey: 2001).
SSIs require comparatively a smaller investment and
avails the financial support of various financial
institutions. There have a number of schemes of direct
and self -employment.
The employment through SSIs has been tremendously
increased from 119.6 lakh during the year 1989 90 to
178. 5 crore during the year 1999 2000. In
succeeding years also in the well grown in all areas.
The challenges to the small-scale sector are due to
the impact of agreements under WTO. The setting up
of the WTO in 1995 has altered the framework of
international trade towards non-distortive, market
oriented policies. This is in keeping with the policy
shift that occurred world wide in favor of the free
market
forces
and
tilt
away
from
state
regulation/intervention in economic activity. This is
likely to lead to an expansion in the volume of

international trade and changes in the pattern of

commodity flows.
The main outcome of WTO stipulated requirements
will be brought about through reduction in export
subsidies, greater market access, removal of non-tariff
barriers and reduction in tariffs. There will also be
tighter patent laws through regulation of intellectual
property rights under Trade-Related Intellectual
Property Rights (TRIPS) Agreements, which laid down
what is to be patented, for what duration and on what
terms. Increased market access to imports will mean
opening up the domestic market to large flows of
imports. The removal of quantitative restrictions on
imports of these items will soon be freed from all
restrictions as announced in the recent import-export
policy. Increased market access will also mean that
our industries can compete for export markets in both
developed and developing countries.
But the expected surge in our exports can come about
only if SSI sector is restructured to meet the demands
of global competitiveness, which is the key to the
future of small industries in present contest. SSIs have
to face threats and also avail opportunities owing to
the WTO and its agreements. The main opportunities
of the WTO are classified into three. Firstly, national
treatment of exportable items across the countries all
over the world, with better market access through the
internet. Second, enlightened entrepreneurs have
greater
opportunities
to
benefit
from
their
comparative advantages due to lowering of tariffs and
dismantling of other restrictions.

Finally, industries that are in constant touch with

government, which in turn negotiates in their best
interests in the on-going dialogue with the WTO, are
going to benefit. India has real chance of becoming
superpower in the service sector, particularly IT. It has
already captured about 25 percent of world exports.
GATT:
DEFINITION of 'General Agreement On Tariffs
And Trade '
A treaty created following the conclusion of World War
II. The General Agreement on Tariffs and Trade (GATT)
was implemented to further regulate world trade to
aide in the economic recovery following the war.
GATT's main objective was to reduce the barriers of
international trade through the reduction of tariffs,
quotas and subsidies.
General Agreement on Tariffs and Trade (GATT), set of
multilateral trade agreements aimed at the abolition
of quotas and the reduction of tariff duties among the
contracting nations. When GATT was concluded by 23
countries at Geneva, in 1947 (to take effect on Jan. 1,
1948), it was considered an interim arrangement
pending the formation of a United Nations agency to
supersede it. When such an agency failed to emerge,
GATT was amplified and further enlarged at several
succeeding negotiations. It subsequently proved to be
the most effective instrument of world trade
liberalization, playing a major role in the massive
expansion of world trade in the second half of the

20th century. By the time GATT was replaced by the

World Trade Organization (WTO) in 1995, 125 nations
were signatories to its agreements, which had become
a code of conduct governing 90 percent of world
trade.
GATTs most important principle was that of trade
without discrimination, in which each member nation
opened its markets equally to every other. As
embodied in unconditional most-favoured nation
clauses, this meant that once a country and its largest
trading partners had agreed to reduce a tariff, that
tariff cut was automatically extended to every other
GATT member. GATT included a long schedule of
specific tariff concessions for each contracting nation,
representing tariff rates that each country had agreed
to extend to others. Another fundamental principle
was that of protection through tariffs rather than
through import quotas or other quantitative trade
restrictions; GATT systematically sought to eliminate
the latter. Other general rules included uniform
customs regulations and the obligation of each
contracting nation to negotiate for tariff cuts upon the
request of another. An escape clause allowed
contracting countries to alter agreements if their
domestic producers suffered excessive losses as a
result of trade concessions.
GATTs normal business involved negotiations on
specific
trade
problems
affecting
particular
commodities or trading nations, but major multilateral
trade conferences were held periodically to work out
tariff reductions and other issues. Seven such

rounds were held from 1947 to 1993, starting with

those held at Geneva in 1947 (concurrent with the
signing of the general agreement); at Annecy, France,
in 1949; at Torquay, Eng., in 1951; and at Geneva in
1956 and again in 196062. The most important
rounds were the so-called Kennedy Round (196467),
the Tokyo Round (197379), and the Uruguay Round
(198694), all held at Geneva. These agreements
succeeded in reducing average tariffs on the worlds
industrial goods from 40 percent of their market value
in 1947 to less than 5 percent in 1993.
The Uruguay Round negotiated the most ambitious set
of trade-liberalization agreements in GATTs history.
The worldwide trade treaty adopted at the rounds
end slashed tariffs on industrial goods by an average
of 40 percent, reduced agricultural subsidies, and
included groundbreaking new agreements on trade in
services. The treaty also created a new and stronger
global organization, the WTO, to monitor and regulate
international trade. GATT went out of existence with
the formal conclusion of the Uruguay Round on April
15, 1994. Its principles and the many trade
agreements reached under its auspices were adopted
by the WTO.
6.5 Supporting Agencies of Government for SSI
Supporting agencies of Government for SSI
Institutions And
Their Role - 1

Technical Consultancy
Services Organisation
TEKSOK
of Karnataka
FOR
(TECSOK), is a
PRODUCT multidisciplinary
DESIGN & technical, industrial
DEVELOPM and management
ENT
consultancy
organization set up.

KIADB
(Factory
Building)

The Karnataka
Industrial Areas
Development
Board [KIADB] is a
statutory body,
constituted under
Sec.5 of
Karnataka Industrial
Areas Development

Karnataka State
Small Industries
(Export
Development
Promotion Corporation Ltd.
s&
(Government
Consultanc of KarnatakaUnderta
y)
king) ::
KSSIDC

KSIMC

Karanataka Small

Industries Marketing
Corporation
(After Setting of
Production
Operations)
District Industries
Center (DIC)

DIC

In each district one

agency to deal with
all requirements of
small and village
Industries. This is
called District
Industries Centre for
investment promotion
at the grassroot level
such as a
organizing seminars
workshops, extending
support for trade fairs
and exhibitions
organized by various
Industries
associations. (Trade
Registrations, Office
Address
Registrations)

National Small
Industries
Corporation

NSIC

SIDBI
LOANS
based on
detailed
project
report

National Small
Industries Corporation
Limited is a PSU
established by the
Government of India
in 1955 It falls under
Ministry of Micro,
Small & Medium
Enterprises of India.
Promotes MSME.(Raw
Material Support Also)
Small Industries
Development Bank of
India is a nonindependent financial
institution aimed to
aid the growth and
development of
micro, small and
medium-scale
enterprises in India.
Set up on April 2,
1990 through an act
of parliament

KSFC
(LOANS)

KSFC is one of the

fast track term
lending financial
institutions in the
country with
assistance to over
1,68,152 units
amounting to nearly
Rs 13,136 crore over
the last 55 years in
the State of
Karnataka. KSFC is
one of the robust and
professionally
managed State
Financial
Corporations.

6.5.1 Meaning,Nature of support;

Meaning and Need for Support Finance is one of the
essential requirements of any line of activity. Before
actually setting up their units, small entrepreneurs
need to know very clearly about the type and extent
of their financial requirements.
Integral to financial requirements is to know about the
possible alternative sources from which finance can
be availed of. Given the shortage of own funds, the
Government of India as a part of its policy of
promotion of small-scale sector in the country, has set

up a host of institutions to meet the financial

requirements of small entrepreneurs.
6.5.2 Objectives; Functions; Types of Help; Ancillary
Industry and Tiny Industry (Definition Only)
Objectives
The Association shall be non- political, non - religious
body.
The Association shall be a corporate body which may
sue and may be sued in its corporate name.
The Association shall watch over, promote and protect
the mutual interests of the Members and represent
the members generally in problems concerning their
industries.
The Association shall strive for complete unity and
understanding between the member units. It shall also
identify and solve common as well as individual
problems of the members/units
The Association shall create a perfect rapport between
units and the Govt.
The Association shall hold frequent get to gethers to
promote better understanding and encourage social
contacts among members.
The Association will strive and/or seek to affiliate itself
with National Level Associations/Bodies concerning
Industries in general and Small Scale Sector in
particular.

The Association shall further the cause of Industries

by holding consultations with the related Government
bodies.
The Association shall deal with such other lawful
things as are incidental or conducive to attainment of
the above objects or any of them and to receive
subscriptions and donations for the purpose of the
Association.
The Association will encourage to develop the
industrial and scientific temper in members with
regard to Jammu and Kashmir State in particular.
Small scale sector is defined in terms of financial
investments ceilings on the original value of the
installed plant and machinery. Small Scale Industrial
Undertakings An industrial undertaking in which
financial investment in fixed assets in plant and
machinery whether held on ownership terms or on
lease or on hire-purchase does not exceed Rs.100
lakhs (Rupees One Hundred lakh only)
Ancillary Industrial Undertakings
An industrial undertaking which is engaged or is
proposed to be engaged in the manufacture or
production of parts, components, sub-assemblies,
tooling or intermediates, or the rendering of services
and the undertaking supplies or renders or proposes
to supply or render not less than 50 per cent of its
production or services, as the case may be, to one or
more other industrial undertakings and who fixed
assets investment in plant and machinery whether

held on ownership terms or on lease or on hirepurchase, does not exceed Rs.100 lakhs (Rupees One
Hundred lakh only).
Tiny Enterprises
Limits in plant and machinery in respect of tiny
enterprises is Rs.25 lakhs (Rupees Twenty Five lakhs
only) irrespective of location of the unit. Small Scale
Service & Business (Industry related) Enterprises
(SSSBEs)
Industry
related
service/business
enterprises with Limit upto Rs.10 lakhs in fixed assets,
excluding land and building, are called Small Scale
Service & Business Enterprises (SSSBEs).

UNIT 8
PREPARATION OF PROJECT
Preparation Of Project:Meaning of Project; Project
Identification; Project Selection; Project Report; Need
and Significance of Report; Contents; Formulation;
Guidelines by Planning Commission for Project report;
Network Analysis; Errors of Project Report; Project
Appraisal. Identification of business opportunities:
Market Feasibility Study; Technical Feasibility Study;
Financial Feasibility Study & Social Feasibility Study.

8.1 Preparation Of Project:Meaning of Project; Project

Identification; Project Selection;
Project:
MEANING OF PROJECT:
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.
PROJECT IDENTIFICATION:
Project identification is a very crucial decision as the
entire success or otherwise of the enterprise depends
upon the selection of the right type of project.
Project identification refers to the process of finding
out the most appropriate project among the several
available investment opportunities. According to
Vasant Desai, "Project identification is concerned with
the collection, compilation and analysis of economic
data of the eventual purpose of locating possible
opportunities for investment". Every project has three
dimensions viz., inputs, outputs and benefits. The
input element comprises of costs like raw material,
manpower, energy, organizational setup, etc. The
output refers to the goods and services, employment
generation, etc. The benefits component refers to the
benefits that may accrue to the society from the given
project.
The project identification involves the following steps:

 Conceiving project ideas

Choosing the right line of business
Opportunity seeking
Decision-making process.
Various sources like export statistics, project profiles,
government politic demand potential study on various
industries, visit to trade and industrial exhibitions
provide ideas for conceiving the project. After
conceiving the idea, the entrepreneur should give
practical shape to the idea he has chosen.
Considerable time and energy may be spent on
choosing the right line of activity by analyzing the
competitive advantage that exists in the proposed
activity in terms of procurement of raw materials,
access to technical know-how and market potential.
All possible opportunities should be explored and after
careful analysis a final selection should be made.
Environment exploration, technology exploration, idea
exploration and present state of business exploration,
etc., could be useful indicators for assessing business
opportunities. Having identified and explored the
ideas correct decision regarding the project to be
taken up is decided.
Project selection:
Authorities are normally faced with a number of
potential investment projects which they need to
assess and prioritise. The ultimate goal of the project

selection process is to ensure that the investments

that will be carried out offer value for money.
Value for money refers to the best available outcome
for society, account being taken of all benefits, costs
and risks over the whole life of the project.
A necessary condition for a project to represent value
for money, irrespective of the procurement option
chosen to deliver it, is that the benefits to be derived
from the project outweigh the costs. This is normally
tested by undertaking a cost- benefit analysis of the
project and its requirements.
In the project selection stage, the Authority and its
advisers will look at alternative project options,
sometimes following guidelines that the public sector
will use to assess PPP projects.
Once the key features and specifications for a project
are drawn up, the Authority and its advisers will
undertake a series of preliminary studies, including
supply or demand analysis, cost analysis and a
preliminary environmental assessment of the potential
impacts of the project.
A distinctive feature of PPP projects is that their
requirements are defined in terms of outputs rather
than inputs. Conventional project procurement has
usually focused on inputs. PPPs therefore involve
fundamental changes in the way projects are prepared
and in the information that the Authority needs to
provide to private sector sponsors. While the typical
set of feasibility studies used in the public

procurement of projects focuses on inputs, PPP

projects demand a clear set of output requirements
and service quality standards, which will be reflected
in the PPP contract.
8.1.1 Project Report; Need and Significance of Report;
Contents; Formulation; Guidelines by Planning
Commission for Project report;
PROJECT REPORT
After having selected the project/product or the
service to be rendered, the entrepreneurs has to
prepare a project report. A project report is a report
which provides all the necessary information of the
unit proposed to be set-up for the manufacture of a
product or rendering a service. Financial institutions
and banks require project report for providing financial
assistance. Various developmental agencies which
help set-up the project also require project report. A
well-prepared project report will help the bankers in
appraising the project report and offer financial
assistance. A project report enables the entrepreneur
to know how much money, man-power and material
would be required to set-up the project, type of
machine and technology required and the economic
gains from the project. Information regarding
economic, technical, financial, managerial and
production aspects of the project/service are covered
by the project report.
There
are
chartered
accountants,
technical
consultants, management consultants etc., who

prepare a project report on behalf of the entrepreneur.

Many time an entrepreneur feels that he would relieve
himself of the botheration to prepare a project report
by engaging a consultant. Experience in developing
entrepreneurs has shown that a well perceived, well
made project report by the entrepreneur himself is
helpful to him while running the industry.
This is so because the process of preparing the project
report enables him to interact with realities and
makes him aware of what to expect in the future when
lie actually implements the project. It's a "drill", a
good training prior to jumping into a venture.
Therefore. even when he chooses to take the help of a
consultant he must involve himself in the preparation
of the project report.
Significance of Project Report :
An objective without a plan is a dream. The
preparation of a project report is of great significance
for an entrepreneur. The important uses of project
report are : It helps in approaching District Industries Centre for
obtaining provisional permanent registration.
- It helps in procuring developed land or shed from
Directorate of Industries or from the Development
Corporation
meant
for
providing
developed
land/sheds' to entrepreneurs.
- It helps in securing supply of scarce raw materials. -

It helps in approaching bank for getting working

capital loan.
It helps in obtaining term loan from State Financial
Corporation/Bank. It helps the entrepreneur in establishing technoeconomic viability of the project.
Contents of a Project Report :
Having gone through the significance of project
report, it is now clear that there is no substitute for a
well-prepared business plan or project report and also
there are no short-cuts to preparing it. The more
concrete and complete the business plan, the more
likely it is to earn the respect of outsiders and their
support in making and running an enterprise.
Therefore, the project report needs to be prepared
with great care and consideration. A good project
report should contain the following contents :
1. General Information : Information on product profile
and product details.
2. Promoter : His/her educational qualification, work
experience, project related experience.
3. Location : Exact location of the project, lease or
freehold, vocational advantages.
4. Land and Building : Land area, construction area,
type of construction, cost of construction, detailed
plan and estimate along with plant layout.

5. Plant and Machinery : Details of machine required,

capacity,
suppliers,
cost,
various
alternatives
available, cost of miscellaneous assets.
6. Production Process : Description of production
process, process chart.
FORMULATION OF PROJECT REPORT :
A project report is like a road map. It is an operating
document. What information and how much
information it contain depends upon the size of the
enterprise, as well as nature of production. For
example small-scale enterprises do not include
technology which is used for preparing project reports
of
large-scale
enterprises.
Within
small-scale
enterprises too, all information may not be
homogeneous for all units. Vinod Gupta has given a
general set of information in his study Formation of a
project report. According to Gupta, divides the
process of project development into eight distinct and
sequential stages as below:

(1) General information

(2) Project description
(3) Market potential
(4) Capital costs and sources of finance
(5) Assessment of working capital requirements
(6) Other financial aspects

(7) Economical and social variables

(8) Project implementation Preparation of Project
The nature of formation to be collected and furnished
under each of these stages has been given below.
General Information: The information of general
nature given in the project report includes the
following: Bio-data of promoter: Name and address,
qualifications, experience and other capabilities of the
entrepreneur. Similar information of each partner if
any. Industry profile: A reference analysis of industry
to which the project belongs, e.g., past performance;
present status, its organization, its problems etc.
Constitution and organization: The constitution and
organization structure of the enterprise; in case of
partnership firm its registration with registrar of firms,
certification from the directorate of industries /district
industry centre. Product details: Product utility,
product range, product design, advantage to be
offered by the product over its substitutes if any.
Project Description: A brief description of the
project covering the following aspects should be made
in the project report. Site: Location of the unit; owned,
rented or leasehold land; industrial area; no objection
certificate from municipal authorities if the enterprise
location falls in the residential area. Physical
Infrastructure: Availability of the following items of
infrastructure should be mentioned in the project
report.

(a) Raw material: Requirement of raw material,

whether inland or imported, sources of raw material
supply.
(b) Skilled labour: Availability of skilled labour in the
area i.e., arrangements for training labourers in
various skills.
(c) Utilities: These include: (i) Power: Requirement of
power, load sanctioned, availability of power (ii) Fuel:
Requirement of fuel items such as coal, coke, oil or
gas, state of their availability and supply position. (iii)
Water: The sources of water, quality and quantity
available.
(d) Pollution control: The aspects like scope of dumps,
sewage system, sewage treatment plant, infiltration
facility etc., should be mentioned.
(e) Communication and transportation facility: The
availability
of
communication
facilities,
e.g.,
telephone, fax, telex, internet etc., should be
indicated. Requirements for transport, mode of
transport, potential means of transport, approximate
distance to be covered, bottlenecks etc., should be
stated in the business plan.
(f) Production process: A mention should be made for
process involved in production and period of
conversion from raw material into finished goods.
(g) Machinery and equipment: A complete list of
machines and equipments required indicating their

size, type, cost and sources of their supply should be

enclosed with the project report.
(h) Capacity of the plant: The installed licensed
capacity of the plant along with the shifts should also
be mentioned in the project report.
(i) Technology selected: The selection of technology,
arrangements made for acquiring it should be
mentioned in the business plan.
(j) Other common facilities: Availability of common
facilities like machine shops, welding shops and
electrical repair shops etc should be stated in the
project report.
(k) Research and development: A mention should be
made in the project report regarding proposed
research and development activities to be undertaken
in future.
Market Potential
While preparing a project report, the following aspects
relating to market potential of the product of the
product should be stated in the report.
(a) Demand and supply position: State the total
expected demand for the product and present supply
position, what is the gap between demand and supply
and how much gap will fill up by the proposed unit.
(b) Expected price: Expected price of the product to
be realized should also be mentioned.

(c) Marketing strategy: Arrangements made for selling

the product should be clearly stated in the project
report.
(d) After sales service: Depending upon the nature of
the product, provisions made for after-sales should
normally be stated in the project report.
Capital Costs and Sources of Finance
An estimate of the various components of capital
items like land and buildings, plant and machinery,
installation costs, preliminary expenses, margin of
working capital should be given in the project report.
The sources should indicate the owners funds
together with funds raised from financial institutions
and banks.
Assessment of Working Capital
The requirement for working capital and its sources of
supply should clearly be mentioned. It is preferred to
prepare working capital requirements in the
prescribed formats designed by limits of requirement.
It will reduce the objections from bankers side.
Other Financial Aspects
To adjudge the profitability of the project to be set up,
a projected profit and loss account indicating likely
sales revenue, cost of production, allied cost and
profit should be prepared. A projected balance sheet
and cash flow statement should also be prepared to
indicate the financial position and requirements at

various stages of the project. In addition to this, the

break even analysis should also be presented. Break
even point is the level of production at which the
enterprise shall earn neither profit nor incur loss.
Breakdown level indicates the gestation period and
the likely moratorium required for repayment of the
loans. Break-even point is calculated as Break-Even
Point (BEP) = F/SV Where F = Fixed Cost S = Selling
Price/Unit V = Variable Cost/Unit The break-even point
indicates at what level of output the enterprise will
break even.
(7) Economical and Social Variables
Every enterprise has social responsibility. In view of
the social responsibility of business, the abatement
costs, i.e., the costs for controlling the environmental
damage should be stated in the project. Arrangements
made for treating the effluents and emissions should
also be mentioned in the report. In addition the
following socio-economic benefits should also be
stated in the report.
(i) Employment Generation
(ii) Import Substitution
(iii) Ancillaration
(iv) Exports
(v) Local Resource Utilization
(vi) Development of the Area

Project Implementation
Every entrepreneur should draw an implementation
scheme or a time-table for his project to the timely
completion of all activities involved in setting up an
enterprise. If there is delay in implementation project
cost overrun. Delay in project implementation
jeopardizes the financial viability of the project, on
one hand, and props up the entrepreneur to drop the
idea to set up an enterprise, on the other. Hence there
is need to draw up an implementation schedule for
the project and then to adhere to it.
Guidelines by Planning Commission for Project
report:
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 business plans/industrial projects.
So far as feasibility report is concerned, it lies in
between the project formulating stage and the
appraisal and sanction stage. 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 in the
industry, 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. The location of
the project as well as its implications should also be
looked into. An account of the foreign exchange
requirement should also be taken. The profitability of
different options should also be given. The rate of
return on investment should be calculated and
presented in the report. Alternative cost calculations
vis-a-vis return should be presented.
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

location 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, flora and fauna; effects arising out of
projects pollution, other environmental discretions,
etc.
The report should contain a list of the operational
requirements of the plant, requirements of water and
power,
requirements
of
personnel,
organisational structure envisaged, transport costs,
and activity-wise phasing of construction and factors
affecting it.
4. Marketing Plan:
A good marketing plan should contain the
following items:
a. Data on the marketing plan.
b. Demand and prospective supply in each of the
areas to be served.
c. 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.
d. 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 viability of the
project. A proforma Balance Sheet for the project data
should be presented. Depreciation should be allowed
for on the basis of specified rate by the Bureau of
Public
Enterprises
(BPE).
Foreign
exchange
requirements should be cleared by the Department of
Economic Affairs (DEA).
The feasibility report should take into account incometax rebates for priority industries, incentives for
backward areas, accelerated depreciation, etc. The
sensitivity analysis should also be presented. The
report must analyse 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 also be included in the report. If they
cannot be quantified, they should be analysed and
their importance emphasised.
9. Miscellaneous Aspects:
The preceding three areas are deemed appropriate to
almost every new small enterprise. Notwithstanding,
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 a few, probable use of
minicomputers or other electronic data processing
services, cash flow statements, method of accounting
etc., may be of great use in some micro and small
enterprises.
8.1.2 Network Analysis; Errors of Project Report;
Project Appraisal
NETWORK ANALYSIS :
A project consists of a number of constituted
activities. It is examined in detail and the details are
utilized to compile the sequential narration of the
constituent activities of a project. The compilation is

known as the project logic. When it is represented in

the form of a graphical portrayal it is called as
network. Network in simple words is defined as the
graphical representation of interrelated activities of
the project.
A network generally comprises a set of symbols
connected with each other in a sequential relationship
with each step making the completion of an event.
The network diagram and scheduling computations
enable the project formulation team to identify the
longest series of activities through the project
implementation phase which determines the project
duration.
A number of network techniques have been developed
and some of them are discussed below: Critical Path
Method (CPM):
The CPM is a logical mathematical model of the
project based upon the optimal duration required for
each activity and optimal use of available limited
resources. It is a deterministic model. Management
and Entrepreneurship Program Evaluation and Review
Technique (PERT):
The PERT is primarily a scheduling technique. It shows
any job or project as a set of processes of operations
called activities which must take place in a certain
sequence. All activities have to be compelled in order

to accomplish the project. It is a probabilistic model

and introduces uncertainties in project network.
Importance of Network Analysis:
The network analysis helps in identifying the hidden
stages involved in project estimates. By identifying
them the management can improve on the on-going
project estimates and learn for future use. The
following are some of the points that speak about the
importance of network analysis.
(i) The whole project has to be considered with
reference to the sequence of activities and events.
Sequence means activities that arc to follow one after
another leading to an event.
(ii) The events should be considered as different
branches of operations.
(iii) The different segments of the project are treated
as separate network which are finally integrated to
the overall network. Then the entire project may be
put on one network.
(iv)The time estimates may be done based on either
previous experience of similar types of operations or
may be based on probabilities for the ones where
previous experience does not exist. (v) Cost estimates

would depend on the project time estimates and the

charge of prices of different factors of production.
(vi) The physical progress of the project, nature of
events, jobs formed and snags in different areas of
project work would call for corrective action at
appropriate time. The concept of crashing would be
helpful to reduce penalties.
Errors:
There are some common errors entrepreneurs face
when writing a business plan.
Procrastination. Its easy to find distractions (such
as your busy schedule) to prevent you from creating a
plan. Resist them. And realize that without a
document detailing plans for the future, your company
is likely to become a rudderless ship at some point.
Financial focus. Think in terms of cash rather than
profits. Initially, your profit and loss statement should
be secondary to your cash flow statement. Youll need
to initially ensure you have enough cash on hand on a
day-by-day basis to survive.
Cover your bases. Dont focus too much on your
grand idea, but make sure that you have all the
fundamentals covered. Bold ideas are hard to sell.
Rather, stress that you have the available time,

common sense and business smarts to succeed. If you

are looking for investors, they will be more interested
in you and your people than the idea.
Forget the hype. Using colorful language and
preconceived notions is an easy trap to fall into, but
both are ultimately superfluous. People looking at your
business plan want to see hard, solid facts, backed up
by very reasonable assumptions. Set milestones, show
which tasks youve established and apply sound logic
to your reasoning.
Be realistic. Priorities are important, but you dont
want to set too many. Potential investors are
interested in your focus and will shy away if you try
and cast too wide a net.
Dont overreach. While youll need to project
growth, make sure those estimates are realistic and
that any growth spurts are tied and referenced to
understandable and realistic events. Your projections
need to be conservative and you must be able to
defend them.
Know the playing field. Its critical to be thoroughly
aware of your business competition. If your business
plan is too inwardly focused, you lose sight of the big
picture, which can be perilous to a small business.
Project appraisal:

Project appraisal is a generic term that refers to the

process of assessing, in a structured way, the case for
proceeding with a project or proposal. In short, project
appraisal is the effort of calculating a project's
viability. It often involves comparing various options
using economic appraisal or some other decision
analysis technique.
Process:
Initial Assessment.
Define problem and long- list.
Consult and short- list.
Develop options.
Compare and select Project.
Types of appraisal:
Financial.
Cost- benefit analysis.
Economic appraisal.
Cost- effectiveness analysis.
Scoring and weighting.

8.2 Identification of business opportunities: Market

Feasibility Study; Technical Feasibility Study; Financial
Feasibility Study & Social Feasibility Study
Feasibility study:
Feasibility studies aim to objectively and rationally
uncover the strengths and weaknesses of the existing
business or proposed venture, opportunities and
threats as presented by the environment, the
resources required to carry through, and ultimately
the prospects for success. In its simplest terms, the
two criteria to judge feasibility are cost required and
value to be attained. As such, a well-designed
feasibility
study
should
provide
a
historical
background of the business or project, description of
the product or service, accounting statements, details
of the operations and management, marketing
research
and
policies,
financial
data,
legal
requirements and tax obligations.
Generally, feasibility studies precede
development and project implementation.

technical

Technical Feasibility:
The technical aspects for the development of the
proposed project are well within the project team's
capabilities to produce such a product. The project
team has experience in all aspects of the technology

to be used; the World Wide Web (web) and a database

program, Microsoft Access.
The scope of this project encompasses both web and
database development. The web development
involves producing and marketing a web page that
conforms to Emerald Webs Request for Proposal. The
project team has developed web pages for the
purpose of marketing real estate, both for commercial
and private residential properties. The marketing of
Warwick merchants parallels our experience in that
both efforts involve the promoting the attributes of
both for a desired purpose. The database to be
developed is similar to our prior effort with another
Warwick merchant " The Grape Vine". The scope of
the database desired by Emerald Webs for this project
is not as encompassing in its requirements or
functionality as "The Grape Vine" project. That project
tracked inventory, vendors, and provided customers
the ability to match wines with an appropriate food
item to be served. It also produced a variety of reports
designed to maintain inventory at certain levels;
hence track sales. Therefore the technical aspects of
the database desired is within our capabilities to
produce.
The web site to be produced will follow Hyper Text
Mark-Up Language (HTML) guidelines that will enable
a cyber visitor to easily understand the meaning of

the site and to draw the visitor to explore the site.

This will be achieved by its ease of understanding via
a pleasant use of colors, fonts, text and description of
it s content. The layout will conform to Emerald Webs
desire to give it a "Main Street U.S.A" feel.
The database as with our previous project will be
based in Microsoft Access, a very capable database
program. Access is a very popular office application
software title that is easy to use and maintain. It is
also compatible with the other Microsoft Office
products, Excel, Word and Power Point. User
documentation will be provided for the operation of
the database. We will also be available to provide
technical
assistance
regarding
the
database
application designed for this project.
The use of the proposed technology has little risk. As
stated the team is familiar with the tools to be used.
The software to be used has been in use for several
years and has been updated periodically. It has been
proven and is widely used in both commercial and
personal projects/applications.
The scope of the project can be managed by our web
and Microsoft Access experience. The constraints
placed upon the project team will not hinder our
ability to produce the desired product. The constraints
of the technology to be used will not inhibit the

production of the final product. Essentially the project

scope will not exceed the capabilities of the
technology used. The ever present constraint that
seems present in every project is time. This constraint
is also present in this project, however our team
leader during this phase of the project, Linda J.
Sampson, has developed a project schedule that is
realistic which provides for the completion of the
project on time
The size of the project team is also seen as a
constraint. Since projects are not assigned unlimited
resources and personnel it is very important to assess
a project's scope when determining the amount of
resources that are needed. In this project the scope is
not beyond the resources that our team possesses.
Given the size of this project and the fact that the
team meets at least twice a week to discuss the
project we feel that the project can be completed on
time as specified. Given our frequent contact, our
familiarity with the technology to be used and a solid
project schedule, we are able to assess risks to the
project quickly and effectively deal with them.
The risk in financial terms in using the stated
technology is nil. All the project application software is
provided at no cost to Emerald Webs. The time to
construct the project is also being provided at no cost
to Emerald Webs.

Technology and system feasibility:

The assessment is based on an outline design of
system requirements in terms of Input, Processes,
Output, Fields, Programs, and Procedures. This can be
quantified in terms of volumes of data, trends,
frequency of updating, etc. in order to estimate
whether the new system will perform adequately or
not. Technological feasibility is carried out to
determine whether the company has the capability, in
terms of software, hardware, personnel and expertise,
to handle the completion of the project. When writing
a feasibility report the following should be taken to
consideration:
A brief description of the business to assess more
possible factor/s which could affect the study
The part of the business being examined.
The human and economic factor.
The possible solutions to the problems.
At this level, the concern is whether the proposal is
both technically and legally feasible (assuming
moderate cost).
Social feasibility:

This involves questions such as how much time is

available to build the new system, when it can be
built, whether it interferes with normal business
operations, type and amount of resources required,
dependencies,
Cultural feasibility:
In this stage, the project's alternatives are evaluated
for their impact on the local and general culture. For
example, environmental factors need to be considered
and these factors are to be well known. Further an
enterprise's own culture can clash with the results of
the project.