Entrepreneurship Development and Management -_ xePublished by : UNIVERSITY SCIENCE PRESS (An Imprint of Laxmi Publications Pvt. Ltd.) 113, Golden House, Daryaganj, New Delhi-110002 Phone : 011-43 53 25 00 Fax : 011-43 53 25 28 www.laxmipublications.com info@lexmipublications.com Copyright © 2009 by Laxmi Publications Put. Ltd. All rights reserved with the Authors and Publishers. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior written permission of the publisher. Price : Rs. 75.00 Only. First Edition Second Edition OFFICES © Bangalore 080-26 61 15 61 © Chennai 044-24 34 47 26 ® Cochin 0484-289 70 04 ®@Guwahati —_ 0361-254 36 69, 251 3 © Hyderabad 040-24 65 23 33 @®Jalandhar —_0181-222 12 72 © Kolkata 033-22 27 43 84 @Lucknow —_ 0522-220 95 78 @ Mumbai 022-24 91 54 15, 24927869 @ Ranchi 0651-221 47 64 UED.9365-075-ENTREPREN DEVELOP & MANAG C. 624 10 ‘Typeset at : Kalyani Computer Services, New Delhi. Printed at : Mehra OffsetCONTENTS Chapters Pages Preface vii LLENTREPRENEURSHIP tt 1.1_Concept/Meaning 1 1L2_Need 1 13 Competencies /Quality of an Entrepreneur 2 14 Current Scenario 15 Prize Enterprise 3 2, ENTREPRENEURIAL SUPPORT SYSTEM CS 2.1 Support System 5 22 District Industry Contres (DICs) ‘6 23 Commercial Banks 6 24 State Financial Corporations 10 3. MARKET SURVEY AND OPPORTUNITY IDENTIFICATION (BUSINESS PLANNING) 15-28 3.1 How to Start a Small Scale Industry? 16 8.2 Procedure for Registration of Small Scale Industry wv 8.3 Assessment of Demand and Supply in Potential Areas of Growth 19 3.4 Considerations in Product Selection 2 3.5__Data Collection for Setting up Small Ventures 22 ‘CT REPORT PREPARATION 2442 41 Introduction ld 42 Project Viability 25 4.3 Appraisal 28 44 Project Management Communications 37 MANAGERIAL ASPECTS OF SMALL BUSINESS 4364 5.1 Principles of Management 8 @)5.2 5.3 54 5.5 5.6 5.7 5.8 5.9 5.10 5.11 5.12 61 6.2 6.3 64 6.5 6.6 6.7 68 h tL 12 13 7A 8.1 8.2 8.3 84 8.5 8.6 8.7 (vi) Operational Aspects of Production Inventory Management Physical Stock Verification (Stock Verification) Basic Principles of Financial Management Marketing Management Objectives of Marketing Research and its Benefits ‘The Elements of the Marketing Mix Personnel Management Sources of Manpower Recruitment and Selection Procedure Importance of Communication in Business LEGALASPECTS OF SMALL BUSINESS Income Tax Sales Tax Registration How to Calculate DVAT ? Tax Invoice Retail Invoice/Cash Memo/Bill Format Patent Rules Factory Act ‘Minimum Wages Act, 1936 (Amended upto 1957) BUSINESS ORGANIZATION Introduction Individual Ownership/Proprietorship Authority and Responsibility ‘Types of Organization MISCELLANEOUS Human Relations and Performance in Organization Industrial Relations and Disputes Relations with Subordinates, Peers and Superiors Wages and Incentives Leadership Labour Welfare Workers Participation in Management issemert eeee& aamaname BSSA@Rassslsls &PREFACE ‘This book Entrepreneurship Development & Management is an endeavour to help the students of Engineering Degree and Diploma Courses, Management Courses, B.B.A. and MB.A. This book is written in the simple and lucid language so that the students may understand the concept of the topic clearly. Latest information and techniques have beon introduced in various topics. The author has tried to give the information which is essential as per the present scenario. ‘The author feels highly indebted to Dr. J.P. Singh, Sr. Member Secretary R.C1L. New Delhi; Honbl. Ajay Chautala, Member Rajya Sabha, Dr. S.P. Mishra, Vice Chanceller, Shanti Niketan Gurukul University, Haridwar, Professor Arun Kanda, Head of Department, Mechanical Engineering, LL-T., New Delhi; Professor (Dr.) S.G. Deshmukh, Associate Head of Dept. LLT., Delhi; Professor Premvrat, Vice Chancellor, U.P. Technical University; Er. Kamal Singh, Dy. Director (Mech.) Small Industries Service Institute, Okbla, New Delhi; Dr. Arun Veer Singh, P.C.S., General Manager, HLHLE.C. Noida, U.P; Honb. Ajay Raj Sharma, Ex. DG B.S.F., New Delhi; Sh. Rampal Keshwar, Additional Director, State Board of Technical Education, Haryana; Sh. Yashpal, Principal, Womens Polytechnic, Sirsa with whose inspiration this book has been written. Any suggestion for the improvement of the book will be welcomed. AUTHOR (vii)ENTREPRENEURSHIP 1.1 CONCEPT/MEANING ‘The concept of the entrepreneur is to make a person to establish his own unit/industry for the benefit of his own and to give jobs to various persons employed in industry. The term entrepreneur itself indicates that the person can start his business by spending his own money along with the money from the contribution from various sources. The person, whosoever, starts business is known as an entrepreneur. The person who wants to establish industry for the manufacture of any product by investing any amount by his own source or by collecting finance from financial’ corporations or by any other means is called as an entrepreneur. 1,2 NEED In the present scenario there is a severe need of an entrepreneur to establish different kinds of industries to strengthen the hands of the Government. Day by day the prices of the commodities are increasing without any control of the Government. “Therefore, once different kinds of industries are established in our country, the rates of the commodities can be controlled as the big manufacturers” charge morte for the same commodity which is being manufactured by the small scale manufacturers. Due to this problem also, there is the need of various industries which can provide jobs in 1ENTREPRENEURSHIP. DEVELOPMENT AND MANAGEMENT various sectors and to reduce the unemployment which is very essential for our country. 1.3 COMPETENCIES/QUALITY OF AN ENTREPRENEUR 1 An entrepreneur must be able to understand the problems which may arise in the development of an industry easily and make up his mind to make the changes required. The decision must be perfect and without any doubt. The system dynamics gives an overall picture of the set up to be started. The entrepreneur must know that everything affects everything. Any change in the industry or business may affect the overall solution. System dynamics is a tool to understand all kinds of problems and to find out the solution. An entrepreneur must be frank everywhere while dealing with customers and suppliers and all the Government organizations. He must be able to decide, understand and take decision as per the situation of the problem. For an entrepreneur, selection of the product is a very important factor while deciding for the establishment of any kind of industry. It is a crucial decision which may affect the entire working of the business. As per the marketing strategy the selection of the product is done by going through the various factors like (a) Product, (®) Price, (c) Promotion, and (d) Place. He must be competent enough to solve all kinds of problems by negotiation. He must be a qualified person having industrial experience. An entrepreneur must handle all the problems related to the industry while starting the business. He must know how to set up an industry and to decide various factors which may affect the production programme as per the requirement. He should know how to make the project while considering all the factors like raw materials, preliminary expenses, sources of manpower, machinery, land and building and how to run the industry. For this purpose, the entrepreneur must strengthen himself so that there should not arise any problem while producing any item in the industry. He should have a trading experience before starting any kind of business. He must know about the market because production of any item is easy in production hall but to market the product is very difficult. Therefore, he should have a market survey before starting any kind of production. He should know about the requirements inENTREPRENEURSHIP 3 the market otherwise the product whatever is being manufactured may be affected and the losses may occur at later stage. 1,4 CURRENT SCENARIO On April 6, 2005 an advertisement appeared in the newspaper. The Hindustan Times, Dr. A.P.J. Abdul Kalam, the President of India, recommended that entrepreneurship be made a subject in schools and colleges to orient students towards setting up enterprises that would provide them with creativity, freedom and the ability to generate wealth. Inaugurating a three-day intemational conference on ‘Employment and Income Security’, Dr. Kalam said: “Banks must be proactive in supporting innovative products that enable wealth generation by young entrepreneurs”. Agreeing with the President, Herman vander Laan of the International Labour Organization said: “Economic growth by itself is not sufficient 10 generate work and employment.” According to Kalam, the banking system should provide venture capital to prospective entrepreneurs right from the village level. He suggested eight schemes that would bring large scale employment and prosperity to the rural sector including biofuel generation, wasteland development, water harvesting, bamboo mission, textile industry, healthcare and village knowledge centres. While seconding the theory that economic and employment growth are not co-related, the National Commission on Enterprises in Informal Sector, chairman Arjun Sengupta stressed the need for the poor to have access to market, technology, skill formation, finance and social security. 1.5 PRIZE ENTERPRISE The employment patiern in India has undergone considerable change over the years. The agro sector has witnessed a slide in employment from 64% to 54%,whereas opportunities in manufacturing and service sectors have gone up from 15% to 19% and 20% to 27% respectively which is a clear indication of the employment future of the country. According to the Global Employment Trends for youth 2004 report of the International Labour Organization (ILO), Geneva, a large number of the 42 million unemployed in India comprises the youth. Gone are the days when a higher secondary qualification or a Bachelor degree could fetch a job. There are over 99,54 lakh students enrolled in higher education in India at present. However, to create and provide jobs to such a large population will not be easy either for the government or the private sector. Therefore, the need of the hour is to encourage job creators rather than job seekers through entrepreneurship.4 ENTREPRENEURSHIP DEVELOPMENT AND MANAGEMENT For a country like India where unemployment is a major problem, entrepreneurship can prove to be a gainful employment opportunity for our educated youth. Entrepreneurship is a strategy. It is about creating prospects through training, monitoring and providing other kinds of support system. Entrepreneurs are not necessarily born but can be made through right education and guidance. Education and Training Lot of people becomes entrepreneurs by accident, not by choice. We should promote entrepreneurship through education. Very few students go to B-schools to become an entrepreneur. Those that do are usually second- generation entrepreneurs. Unfortunately, entrepreneurship education continues to remain at a nascent stage in India. There are three training institutes under the ministry of small-scale industries that impart training to both potential entrepreneurs as well as trainers of entrepreneurship. These include the Indian institute of Entrepreneurship, Guwahati, NISIET, Hyderabad and National Institute for Entrepreneurship, and small business Development, Noida. Despite the serious need to create opportunities for the unemployed, entrepreneurship is one sector, which has not been given the right focus as yet. Even the few institutes imparting entrepreneurship education are more focused on producing managers than entrepreneurs. Reason for Change Today generation wants to get the best of everything in life and if their current position is not providing them all, they do not hesitate to look for fresh avenues. According to an online survey conducted by Monster India, among the people who are looking for employment opportunities,51% comprises those who are already employed, about 27% are looking for their first career break,14% are unemployed and only 8% were seeking advice on development in their current roles the reason for change could be varied from a better pay package, more challenging work, better growth opportunities to even a bigger brand. The fact is that the present day workforce does not want to compromise on any front and expects the best of everything. Apart from the traditional reasons of monetary benefits, growth prospects and brand name, there are some new reasons which have emerged for frequent job hopping. People are no longer emotionally attached to their boss and organization. They get easily frustrated if the work is too monotonous or even if there is a change. Moreover, there are neither any deterrents in changing jobs nor is their a social stigma attached to it. The biggest reason however is that the new generation wants to reach the top in just 15 to 20 years and they find hopping jobs a quicker way to do so. The market has never been so conducive to changing jobs as it is today. There is no dearth of avenues for the skilled workforce which gives them more bargaining power as well. Companies do not have the time to train fresher. They do not mind paying more to a skilled and experienced person who can contribute right from the day one.ENTREPRENEURIAL SUPPORT SYSTEM 2,1 SUPPORT SYSTEM The Government of India is encouraging entrepreneurship through various initiatives and organizations like the National Entrepreneurship Development Board (NEDB),Small Industries Development Organizations (SIDO), National Small Industries Corporation Limited (NSIC) and National Commission for Enterprises in the Unorganized sector (NCEUS) to mention a few. Apart from assisting the first generation entrepreneurs from identifying the areas in which they can start their own ventures, these organizations provide the necessary information about the market, technology and equipment required, suppliers of equipment, procurement of raw material, sales and marketing of products and so on. H. P. Kumar, Chairman, NSIC said that NSIC have agreements with commercial banks which makes it easier for the new entrepreneurs to rout loan applications through the department. NSIC has developed a model, an integrated package for youths who want to start their own enterprises. The initiative can be undertaken anywhere in the country. The organization encourages youngsters to come forward and apply and conducts an interview to gauge their interest in the field. The minimum requirement include a place to start the venture 10% to 20% of margin money and some background or understanding of the business. The selected candidates are trained for two weeks in which they are provided inputs on business law, local environment, management and assisted in identifying an area in which an enterprise 5aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.8 ENTREPRENEURSHIP DEVELOPMENT AND MANAGEMENT Funds utilization in proper manufacturing business companies Role of Commercial Banks 1. Encourage the customers for deposit 2. 3, Credit creation 4. Export import promotion 5, Remittance of money 6. Safe custody of valuables. ‘Commercial Banks Borrowing Lending ‘Saving Account Overdraft Current Account Cash Credit Fixed Deposits Loan Recurring Deposits Functions of Central Banks —————*—__ Controller of credit a Issue of notes x. Custodian of foreign ‘exchange reserve Government bankers agent and adviser Bankers bank + National clearing houseaa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.12 ENTREPRENEURSHIP DEVELOPMENT AND MANAGEMENT. (d) National Small Industries Corporation (NSIC) The function of the National Small Scale Industries Corporation is to guide the entrepreneurs about how to start/set up their industry as per the requirement. It provides complete technical know-how of the project in various sectors. The head office of the National Small Industries Corporation located at Okhla Industrial Area in Delhi, prepares many kinds of programmes to help the entrepreneurs to set up their own industries, due to which our small scale sectors are developing rapidly. Those, who are registered. with this corporation, are given the exemption to appear in any government tender by getting the relaxation of not depositing the earnest money but only the security deposit. The entrepreneur willing to apply in any tender has to submit 10 per cent earnest money against the projects order which is a difficult task for a small scale industrialist as the person who is running a small scale industry may not be having so much of fund to deposit by applying for any tender. This relaxation is given only to those industries which are running in an industrial area. At present, National Small Industries Corporation (NSIC) is running various programmes in various sectors. It provides various information by inviting various industrialists to set up their own stalls at Pragati Maidan, New Delhi on rental basis. Due to this, the entrepreneurs willing to set up their own industries, can visit the exhibitions related to technology and the other fields to decide about the product to be manufactured at their own places. The corporation (NSIC) provides the entrepreneur loan at a concessional price by giving 5 to 6 years time for the repayment as during this period the entrepreneur can develop his own industry to meet the essential requirements to set up the industry. The corporation gives training to the entrepreneurs willing to set up their own industries at Okhla Industrial Area in their pilot production unit. This gives a lot of encouragement to the entrepreneurs for the development of their own industries. In brief, National Small Industries Corporation (NSIC) provides the under mentioned information: Technical know-how to set up an industry. To provide loan at a concessional rate to the entrepreneur. To guide entrepreneur about how to set up an industry. To provide training to the entrepreneurs in the field of their desires by giving training for a period of six months or one year as per the need, 5. Providing loan against the hypothecation of land, building plant and machinery. a eeaa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.ENTREPRENEURSHIP DEVELOPMENT AND MANAGEMENT escalation, contingencies, manpower required are to be given along with the fixed capital and the working capital which is required to run the business. As per the fixed capital is concemed the capital when is invested on the assets like land and bulding which may not be sold unless the business is to be closed. The project report is to be submitted to any commercial bank which gives the loan for the industry. The entrepreneur must prepare the project only after having the market survey of the various items manufactured in that particular area and the field of his own interests in which he wants to start the business. Any kind of business can be started with a little experience in that particular field as if any amount is invested in industry. This may affect the profit of the product manufactured. The escalation and contingencies are meant for the purpose of meeting the financial requirement. Whenever there is any price hike of the commodity in the market to meet the particular demand, the escalation contingencies amount is utilized. The pre-operative expenses are the expenses which are used to start any business. If anyone wants to start any kind of business he should have the pre-operative expenses which are used to meet the requirement at the time of starting of the business. The cost of the plant and machinery is to be calculated only after going through processes of various machines in the market and the entrepreneur which one he finds himself is suitable for the particular industry. He can select the same. The small scale industry can be started within the amount ranging from 10 lakhs to 15 lakhs. It can be arranged from any financial institutions like Uttar Pradesh Financial Corporation, Delhi State Financial Corporation, Industrial Development Bank of India, State Bank of India or any other commercialized bank which deals in the particular sector. There are certain points which are to be considered while selecting a place of production where all kinds of things are available. Some of them are: 1, Market of the product Industrial area The suppliers availability Manpower availability Electricity ‘Water Transport facility. All the above factors are the essential factors which are to be considered before starting any small scale industry. The small scale industrialists always face a lot of problems while starting the business. If one considers all the above factors before starting the business, there will be no problem at all in future, To start any business is easy but to sell the product in the market is difficult without having experience in the field. The market survey is must which gives the idea to tackle the market position by supplying the Naveenaa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.20 ENTREPRENEURSHIP DEVELOPMENT AND MANAGEMENT PRODUCT LIFE CYCLE Decline Stage Introduction Fig. 3.2 There are various stages like introduction, growth, maturity and the decline. These stages occur in any kind of business to be started. 3.4 CONSIDERATIONS IN PRODUCT SELECTION While selecting the product the entrepreneur must go through the market survey to know about the product in which he would like to start his own business or industry as per his financial capability. The under mentioned points should be considered: 1. The demand of the product in the market: To assess the demand of the product in the market the entrepreneur has to visit various industries in which he is having interest to start the production to know the demand in the market while having a survey of various industries by means of using questionnaires and visiting various industries about the demand of the, particular product. * 2. To assess the demand the entrepreneur must start trading business: By purchasing the same product and selling it in market to have the contact with various consumers. who Can ultimately become the members of the indtistry in his field of interest. The trading is must for starting any sind of business. Just to;fnvest. the amount for manufacturing any product at the site may lead to failure. Unless the demand is known in the market the selection of product is a crucial decision which is to be taken only after going through several factors which may affect the productMARKET SURVEY AND OPPORTUNITY IDENTIFICATION... 21 as the product whatever is to be selected should be decided only by going through the details of product which is already available in the market before starting the product selection. 3. The entrepreneur must decide what type of industry he wants to start: (a) Manufacturing Business (b) Trading Business (© Consultancy Business (¢) Assembly of the components to make the product. 4. Decision consideration: The decision is to be taken on all the above points. Only then the product is to be selected as in case the entrepreneur starts producing a component in his industry in which he is not having any knowledge may lead to failure in future. Due to this reason, the demand of the product in the market is to be known by going through survey either by literatures by using questionnaires by visiting various industries by consulting different consultants to decide about the product before starting any business. The entrepreneur must decide the place of his business at which place he wants to start his industry because the place ., itself plays a very important role for the product selection. 5. Steps to decide selection of product: As in the marketing, management, the under mentioned four points are considered: @ Product (0) Price (© Promotion (@ Place. From all the above points first of all product to be manufactured, must be decided by the entrepreneur only by going through several factors which, may affect the sale in future. Therefore, the selection of the product is the crucial decision which is to be taken by the entrepreneur. Secondly, the price ofthe component is to be decided as in case the entrepreneur is manufacturing a component which is having a monopoly in the market, can be sold easily. Incase the same component is also manufactured by various industries then it will be difficult to survive in the market. Therefore, the price decision is also to be taken after going through the market survey to decide about the cost of the product to sell the component at competitive price in the market. Thirdly, in the promotion of the product the entrepreneur has to decide how to promote the product in the market as there are different ways to promote the product in the market: by giving advertisement in a newspaper, by using electronic media by using questionnaires and by visiting various industries. Lastly, the place itself plays a very important role. While selecting a place the entrepreneur must decide whether he would like to start his = business in the industrial area or at the rural area or some other place because while manufacturing a component in the industrial area, the 50% dffithe sale problem may be’solved as the various industries may be requiring the same product in which he is having interest, secondly, in industrial area all kinds ~ of requirements like labour, manpower, machintry, electricity and transpor’ are available due to which the work may not suffer at all. Take an example,22 ENTREPRENEURSHIP DEVELOPMENT AND MANAGEMENT in case the entrepreneur is willing to start the computer business at the remote place, then there will be problem how to sell the computers in the remote place as there will be no demand at all and the transportation cost may also affect the price of the product and in case doing assembly work then also he has to take care where he would like to sell his product. The entreprencur is also having an option to manufacture product as the ancillary unit for some industry. In this case the product whatever is to be manufactured can be consumed in that particular industry in which he will be having a rate contract to manufacture the product, in this case the entrepreneur will not be having any kind of problem as the rate is already fixed by the consumer and he can run business very easily. So accordingly the product is to be selected. 3.5 DATA COLLECTION FOR SETTING UP SMALL VENTURES The collection of data for setting up small ventures can be done by the market survey: by using the technique of questionnaires, by going through literatures and by going through the know-how which is available at various industries for example the project reports are available at Indian Investment Centre, Parliament Street, New Delhi, Udyog Bhawan, New Delhi-4, libraries and by visiting different small scale industries. They are manufactured different components as per the desire of the entrepreneur in which he wants to start his business. After visiting various industries the entrepreneur can assess the requirement in the market. On one side he is going to get the idea of the demand and on the other side he will be having knowledge in the particular industry. There are different techniques to collect the data like mathematical method, root-mean square method and statistical method etc. While going through the project reports, he will find that the different kinds of projects are available in libraries and he can go through all the project as per his field of interest and get it photocopied of the same and the address of the suppliers can also be known through the project report itself. He can collect the information either by sending letters to various manufacturers and suppliers of the product in his field of interest while making the questionnaires. He can start by preparing a literature in which he can ask questions like what, where, why, how as the idea of these can help the entrepreneur to start a small venture. At present the small scale industries are helping the nation in all fields because the big manufacturers/ industries are charging more for the component which is being manufactured by the small scale industries. Due to this reason the 80% of the supply is done by the small scale sector and 20% by the big industries due to the competitive cost in the market.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.PROJECT REPORT PREPARATION aN 4.1 INTRODUCTION To establish any project the complete information about marketing, finance, and technological aspects are scrutinized carefully. The market survey is done to know about the latest development in the technique and the information is to be collected from various sources. Before starting your project the objective of the project must be clear as unless the objective/target is clearly known, everything done, will go waste. Therefore, first of all the objective/goal/target is to be decided and then the further study is to be done. The flow diagram of the project is shown as under: Input Work in Progress, Output Finished Product Feedback Fig. 4.1 Flow Diagram of a Project 24PROJECT REPORT PREPARATION 25 Land Building Plant and machinery Raw material Pre-operative expenses Escalation and contingencies Electricity and water Labour. 4.2 PROJECT VIABILITY The pre-planning is done before starting any project and the under mentioned points should be checked very carefully. pe te phe Boe Financial aspects Break even point Net present value Marketing aspects Technological aspects Profit and loss National aspects. Investment Criteria There are a number of investment criteria in use. Some of the accepted criteria are given below: 1. 2; Traditional criteria (@ Pay back period. (® Accounting rate of return. Discounted cash flow criteria (@ Net present value. (6) Internal rate of return. (©) Profitability index or benefit cost ratio. It may be noted that different firms may use different methods. A large company may use more than one technique to appraise each of its investment projects, while a small firm may contend with using only one technique which involves minimum funds and time. However, to avoid confusion same methods should be used uniformly for every project throughout the firm.26 ENTREPRENEURSHIP DEVELOPMENT AND MANAGEMENT Pay Back Period Pay back period is one of the most popular and widely recognized traditional methods of evaluating investment proposals. It is defined as the number of years required to recover the original cash outlay invested in a project. If the project generates constant annual cash flows, the pay back period can be computed dividing cash outlay by the annual cash inflow ie., ee Cash Outlay (Investment) Pay Back Period = "sual Cash (Inflow) Accounting Rate of Return (A.R.R.) Method The accounting rate of return method uses accounting information as revealed by financial statements, to measure the profitability of the investment proposals. The accounting rate of return is found out by dividing the average income after taxes by the average investment. The average investment would be equal to the original investment plus salvage value if any, divided by two. = Average Income ARES Average Investment The Net Present Value The net present value method is the classic economic method of evaluating the investment proposals. It is one of the discounted cash flow techniques explicitly recognizing the time value of the money. It correctly postulates that cash flows arising at different time period differ in value and all are comparable only when their present value are found out. The steps involved. in the net present value method are—first an appropriate rate of interest should be selected to discount cash flows. Generally the appropriate rate of interest is the firm’s cost of capital which is equal to the minimum rate of return expected by the firm on its investment proposals. Second, the present value of investment outlay i.e, cash outflows should be computed by using cost of capital as the discounting rate if all the cash flows are made in the initial year then their present value will be equal to the amount of cash actually spent. Thirdly, the net present value should be found out by subtracting the present value of cash outflows from the present value of cash inflows. Thus, the net present value method is a process of calculating the present value of cash flows-inflows and outflows of an investment proposals, using the cost of capital as the appropriate discounting rate and finding out the present value by subtracting the present value of cash outflows from the present value of cash inflows.PROJECT REPORT PREPARATION 27 Project Management Concepts Each project is unique. 1. A project will consists of tasks/activities to be done. 2. Tasks are not independent they have precedence requirements. 3. Nature of the task as each task consumes time and resources. Project Identification - — 4 Appraisal/ldentification Birth | Selection + | i ' Project Planning and | Basic Scheduling i Project Planning | J | Vv a { Resource Consideration Pevelepment | Time/Cost = Aggregation | | Trade offs + Levelling (Non renewable) « Allocation U _— Acceptance Plan for implementation » | Project implementation Monitoring, Time/Cost. | _!™plementation Performance Taking Corrective Action Project Completion and Completion Audit Feedback for Future | Fig. 4.2 Life Cycle of Project Definition Project “ 1. Understanding or a venture to accomplish some objective. 2. Tasks are govemed by precedence and consume time and resources.28 ENTREPRENEURSHIP DEVELOPMENT AND MANAGEMENT 4.3 APPRAISAL Feasibility Report 1. Market + Aggregate future demand * Market share Technical-Engineering aspect. + Location * Size * Process Financial * Cash flows overtime (depends on overtime/sale) * Profitability + Break even point + N.P.V (Net Present Value) + LR.R (Internal Rate of Return) * Payback period + Risk Economic * Social cost benefit + Analysis Project Feasibility Report Project Selection Fig. 4.3PROJECT REPORT PREPARATION Capital Budgeting 29 Generation ] Evaluation Selection Execution Certainity! <1 Cash Flow Project Appraisal Uncertainity I T Risk Return tH Trade off q Market Share Fig. 44 Financial Criteria in Project Management Entrepreneur is most interested in: 1. Investment level * One time * Phased investment 2. Returns + Magnitude + Time (Estimated from the anticipated sales of the product when you are going to get the return). 3. Risks + Depending on the contract. Calculated risk management would like to know. 1 Rt Fig. 4.5 2. —— Yearsaa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.PROJECT REPORT PREPARATION a1 -20,000 Investment 8000 10000 = 10000» 12000» 12000 a a 1 2 3 4 5 x ~12000 — -2000 Returns Fig. 4.9 Comulative back period (-20 + 8), (12 + 10) 4 Pay back period ‘Cumulative’ retun Selection Criteria of Project Model of | Initial | H.P | Seating |Running| Esteem | After Sales| Best Vehicle Cost Capacity| Cost | Value | Service | In M-800 22 800 04 01 07 oo 03 M-OMINI 15 800 06 03 05 7 02 ‘M-Gypsi 175 1000 05 05 05 7 00 FIAT 21 1100 05 05 03 o7 OL Ambassador | 25 1100 06, 05 03 09, 03aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.38 ENTREPRENEURSHIP DEVELOPMENT AND MANAGEMENT Techniques can vary from project to project, for example on one project the customer may require that all test data be made available, in writing as soon as testing occurs and possibly before your own people have had a chance to examine the results. This type of clear and open communication cannot exist indefinitely because the customer might from his own opinion of the data before hearing the project office position. Similarly project managers should not expect functional managers to provide them with immediate raw test data until functional analysis is conducted. 1. With every effect to communicate there are always barriers. These barriers include, Receiver hearing what he wants to hear. This results from people doing the same job. 2. Sender and receiver having different perceptions. This is vitally important in interpreting contractual requirement, statement of work, and proposal information requests. Receiver evaluating the source before accepting the communications. Receiver ignoring conflicting information and doing as he pleases. Words meaning different things to different people. 6. Receiver being emotionally upset. ‘Two important conclusions can be drawn about communication techniques and barriers. 1. Do not assume that the message you sent will be received in the form you sent it. 2, Communication must be established early in the project. Communication problems in project management require the answering of the following three questions. 1. What are the channel of communication? 2. What information is really important? 3. Will I be punished for bringing forth bad news? In project environment communications are often filtered. There are several reasons. There are: 1. Unpleasantness for the sender. we 2. Receiver cannot obtain information from any other source. 3. To embarrass a superior. 4. Lack of mobility or status for the sender. 5. Insecurity. 6. Mistrust. Normal Projects. In this category of projects adequate time is allowed for implementation of the project. All the phases in the project are allowed to take time, they should normally take. This type of project requires minimum capital cost and no sacrifice in terms of quality.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.aa You have either reached a page that is unavailable for viewing or reached your viewing limit for this book.ABOUT THE BOOK The book Entrepreneurship Development and Management has been written for the students of Engineering Degree, Diploma Courses, and Management Courses (B.B.A. and M.B.A.). This book consists of eight chapters. Salient features of the book are: + Language of texts lucid, direct and easy to understand. * Lalestinformation and techniques have been introduced in various topics. * Allchapters have been presented and described with flow diagrams as per the requirements. ABOUT THE AUTHOR Dr. A. K. Singh did his B.. in Mechanical Engineering from Bangalore University in 1980 in first class with distinction securing 80-90 % marks in various subjects. He did his project work on Solar Still to obtain distilled water from brackish or saline water. The project was sponsored by the Indian Institute of Science, Bangalore. After completing his dere, he joined National Seeds Corporation (Govt. of India Undertaking) as an Engineer for a short period of time and then he established his ‘own industry (Packaging & Chemical Industry) at Noida, U.P. He worked as the Managing Director {ill 1988. Later, he did his Post Graduate Diploma specialization in Marketing Management from IGNOU, PGD (MM) in 1995 and PGD (OM) certificate course from IGNOU in 1998. He did his Mech. in Industrial Engineering from |-T., Delhi in 1999. He joined Border Security Force (DW) in 1993 and worked for more than ten years in the service of welfare organization. He has performed verious duties and as Principal at B.S.F.(DW) fora short period of time and served as Principal at Somany institute of Technology & Management, Rewari. Later, he joined as Principal & Professor at Jan Nayak Ch. Devi Lal Vidyapeeth, Sirsa (Haryana), worked as Professor & Head (Manufacturing Technology Department.) at JSS Academy of Technical Education, Noida, U.P. He has also worked as Director at Shree Ganpati Institute of Technology Ghaziabad, Director at Gyan Bharti Institute of Technology, Meerut, Director at Raj Kumar Goyel College of Engineering, Pikhuwa, Ghaziabad and presently working as Director at International College of Engineering, Ghaziabad, Uttar Pradesh, INDIA. Dr. Singh has attended several seminars and conferences and organized various program at colleges including motivational campaign program by Micro and Small Scale Industries. Dr. Singh has completed his Ph.D. in Mechanical Engineering from Allahabad Agricultural Deemed University, Naini. ISBN 978-81-318-0705-7 @ UNIVERSITY SCIENCE PRESS |, | N | y