M & E Unit - 8

UNIT - 8

PREPARATION OF PROJECT:
8.1 Meaning of Project
8.2 Classification
8.3 Project Identification
8.4 Project Selection
8.5 Project Report -Need and Significance of Report
8.6 Contents of Project Report
8.7 Formulation of Project Report
8.7 Guidelines by Planning Commission for Project report
8.8 Network Analysis;
8.9 Errors of Project Report;
8.10 Project Appraisal.
8.11 Identification of Business Opportunities
8.12 Market Feasibility Study;
8.13 Technical Feasibility Study;
8.14 Financial Feasibility Study
8.15 Social Feasibility Study.

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8.1 Meaning of Project

The project is a scientifically evolved work plan devised to achieve specific objective within a
specified period of time.

The dictionary meaning of a project is that it is a scheme, design, a proposal of something

intended or devised to be achieved.

The World Bank defines it as Project is an approval for capital investment to develop facilities
to provide goods and services

Project is a non-routine, non-repetitive, one of undertaking normally with discrete time,

financial and technical performance goals. Harrison.

A project is a whole complex of activities involved in using resources to gain benefits

Gillinger

8.2 Classification of Projects

I Quantifiable and Non-quantifiable projects

Projects for which quantifiable assessment can be made are known as Quantifiable. Eg. Power
generation, industrial production, industrial development

Projects for which quantifiable assessment cannot be made are known as Non-Quantifiable. Eg.
Health, defense.

II Sectoral Projects
Based on sector of activity of the project.
Automobile Agriculture
Manufacturing

Power

Food Processing

Health
Mining

Education

Transport

Irrigation

III Techno-economic Projects

Projects can be classified based on Techno-economic criteria under which there are three groups

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a) Factor Intensity - Oriented classification:

Based on the intensity of the factors

involved in the project they could be classified as Capital Intensive where investment is
heavy or Labour Intensive where labour required is more, etc
b) Cause Oriented classification: Based on the demand for some item

or service which

causes setting up of unit, then it is called Demand Based. When a unit is set up because a raw
material is available in plenty and cheap which is capitalized then it is Raw Material Based
c) Magnitude-oriented classification: Based on the level of investment and vastness of the
project it could be classified to be Large Scale, Medium Scale, Small Scale, etc.

8.3 Project Identification

Project identification involves collection of economic and relevant data, compiling, analysing,
short listing and finally choosing a product or service which ultimately would result in a profit.

According to Peter F. Drucker there are three types of opportunities Additive, Complementary
and Break-through
Additive Opportunity: is utilizing the existing resources, facilities and methods without
any change. There is no risk involved in this type of venture since the path chosen is an
existing one.
Complementary Opportunity involves new ideas that cause some changes in the existing
system. A little risk is involved in this type of opportunity.
Break-through opportunities reflect both fundamental changes in both character and
structural of the business. This involves a very high risk as compared to the other two
opportunities.

Project identification could be made in one of the following ways

Observation: is one of the important and basic source of project ideas. Observing and
identifying scarcity of any product (Nirma soap requirement in rural areas) leads to development
and meeting that scarcity. Availability of some unique area specific raw material may lead to
decision on selection of a project. Similarly availability of skill in an area might help decide or
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select a project. Many a times study and observation the existing processes and methods itself
leads to new project ideas.

Trade and Professional Magazines: Literature keeps a person in touch with the latest
developments and trends and also stimulate to develop new ideas for implementing as a project.

Bulletins of Research Institutions: provide new ideas based on R&D findings published.

Government Sources: Govt. Dept publications provide useful information which can be used
for identifying new projects. Government agencies set up for the purpose readily provide projects
for SSIs.

Customers: Existing and potential customers are the best source for ideas for ventures.
Identifying the need and how it can be met leads to identification of project.

Existing Products / Service: throw light on new projects with regard to improvement in
functioning, adding new features to product or service, etc.

Distribution Channels: serve as a good source since they interact with customers get
information as well as back with regards to needs, performance, improvements, features etc.

8.4 Project Selection

A selections starts where a Project identification ends.

Short listed projects from identification process are subject to analysis based on demand,
government policies, economic condition, availability of resources, profitability, etc. A SWOT
(SCOT) analysis also done (Strengths, Weaknesses or Constraints, Opportunities and Threats)
Strengths of the enterprise like skills, man power capital, technology is analysed w.r.t the
product.
Weaknesses or Constraints of the enterprise are listed with a view to analyse and
overcome them.

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Opportunities w.r.t. the product are studied for development, implementation, marketing,
etc. This includes market share, export possibilities, feature and quality of product, life of
product, etc.
Threats involving are competition, import of cheaper substitutes, government policies,
technology

obsolescence or up gradation, increase in input costs, etc are analyzed.

Other points to be studied are

Technology: required for the project must be readily available preferably within the country. It should be
affordable also for the project to be feasible.
Equipment: The type of equipment required should be carefully studied and selected with respect to
productivity and its cost.
Investment Size: The capital investment should be studied carefully and properly assessed. Many units
have not taken off because of faulty assessment and getting stuck mid-way for want of funds.
Growth of Sales: Assessment of growth of sales over the period of project or specific period in the
future. This information and assessment is also crucial for sustained successful working of the
enterprise.
Location: the entrepreneur should locate the project where resources and raw material are available.
Market: The product should be marketable and proper distribution channels should be available for the
product or service.

8.5 Project Report -Need and Significance of Report

A project report is a written document pertaining to the investment proposal.

It contains details of what the entrepreneur proposes to do, why, how he proposes to do it, the
resources to be used, the total cost of the project, project road map, his investment, investment
sought from external sources, etc.

A detailed project report assists in getting approval of appointed agencies, acceptance by

financial institutions for sanctions, investment from investors as well as lenders.

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Therefore it is imperative that a project report is prepared with great care and due consideration
for every detail.

It also helps the entrepreneur to always fall back and refer the report at any stage of the project
for checking on progress and assessing whether the project is on track or not.

Significance of project report

After deciding what to do it helps entrepreneur determine the variability of the venture.

It helps entrepreneur verify progress take correct actions, reorganize towards meeting the goal

Raise money through financial institutions

Obtain the approvals, licenses, etc from concerned authority

Attracts investors and lenders

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8.6 Contents of Project Report

General Information: The project report should contains information regarding the company,
product profile, product details and specifications.
Promoter: The details of the promoter/s proprietor, partners, directors, names, age, address,
educational qualification, experience in the line of activity, etc are to be provided.
Location: Details of the location of the project, whether it is own or leased, reason for choosing
that location, its advantages etc..
Land and Building: Details of the extent of land, its boundaries, whether it is owned or leased,
Building built up area, area required, area built, scope for adding more built area for expansion.
Whether building is ready for occupation or to be built. If to be built whether it is on borrowings
or own funds. Plan of building to be attached to report. Estimates for construction are to be built
to be attached to the report.
Plant and Machinery: Details of machineries must form part of the project report. The
machinery list, number, capacity of machines, suppliers details, cost details, etc should be
enclosed
Capital Requirement and Cost: List of items building, machinery, furniture, office
equipment, cost of the items required and the total capital requirement with provision for
contingency needs to be furnished.
Operational Requirement and Cost: based on a single or two shift basis should be furnished.
This includes, raw material costs, fuel, power, consumables, labour, repair, maintenance,
overheads, etc.
Production Process: The project report needs to detail the production process, sequence of
operation, block diagram furnishing flow chart for the item from the raw material to finished
product. The technology used for the production, alternate technologies, etc.
Raw materials: Main raw materials, its availability local, with in the country or need to be
imported, cost of raw materials, etc. needs to be listed. List should also include suppliers details,
alternate materials and alternate suppliers names.

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Man Power: Number of people likely to be employed, skilled workers, semi skilled, unskilled
workers list along with the cost of labour details need to be part of the report.
Products: List of products to be manufactured, product mix, product quality standard and
quantity needs to be mentioned. The possibility of the use of the same machinery and set up for
alternate possible products could also be provided.
Market: The list of customers, method of making available to the customer, distribution channel,
trade practice, sales price, sales promotion, marketing strategy, estimated sales likely month wise,
quarter wise, needs to be provided. Projected sales over the next few years.
Economic Analysis: Gestation period, breakeven point, profit on sales, return on investment,
market share of product, foreign exchange earning if any, etc need to be worked out and
furnished as a part of the project report.
Working capital: Requirement of working capital, sources of it, promoters share, finance sought
from institutions, credit facility available, credit given to customers, stock of raw materials and
consumables required, cost of borrowings, etc need to be detailed in the report.
Requirement of Funds: Break up Project Cost Land and Building, Plant and Machinery.
Preliminary Expenses, working capital, miscellaneous assets, need to be furnished.

8.7 Formulation of Project Report

A set of general information given in project reports is listed below
I. General Information
II. Project Description
III. Market Potential
IV. Capital Costs and Sources of Finance
V. Assessment of Working Capital requirements
VI. Other Financial Aspects
VII.

Economic and Social Variables

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VIII.

Project Implementation

I. General Information
a. Promoter Details: Details of entrepreneurs proprietor, partners of a firm, directors of a
company. Names, age, address, educational qualification, experience, etc.
b. Industry Profile: Description of the business that is intended to be set up, or details if existing
already. A brief history of the business, its potential, scope, etc. if it is a new unit. Past
performance and growth potential if an existing one. Present status, problems faced, etc.
c. Constitution and Organization: Proprietorship, partnership, private limited company.
Documents supporting the nature of the enterprise. Address if already set up or address of
proposed location. Copy of SSI Certificate, if existing or copy of letter of application for the
same.

II. Project Description

A description of the project which should contain the following
a. Site: Address of the site location. Whether it is in the name of the enterprise or promoter or
rented or leased. Copy of documents to that effect. Whether location is an industrial one or not.
If not NOC from the local authorities for setting up an industry.
b. Infrastructure: If the location of the site is in an industrial estate set up developed by SSIDC
or SSIADB the locality would have the necessary infrastructure viz. roads, drainage, power
lines, water facility, sewage lines etc. If not the availability or lack of it needs to be specified in
the report.
c. Utilities: Details of Power required, water required (If water intensive unit), etc need to be
mentioned in the report.
d. Building: Whether available or to be built. Copy of approved plan of the building. Area
proposed to be built if construction is to be part of the project. Cost of the building. Finance
arrange from own source or to be sought from financiers.

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e. Pollution Control Regulations: If the unit is chemical based then clearance letter with regard
to Pollution Control Authorities. Whether affluent treatment facility is to be in house or
out-sourced, Steps to ensure that polluted water or chemicals are not let into the sewage system
even accidentally.
f. Communication facilities: Details of availability of communication facilities like Post Office,
Telephone, Telefax, internet / broadband facilities in the vicinity.
g. Transport facilities: Requirement of transport, mode and need of transport are to be included.
h. Machinery and Equipment: A detailed list of machinery and equipment needs to be provided
with the specification of the machines, its features, capacity, sources of supply, costs,
availability, waiting time, whether available locally, in the country or need to be imported.
i. Capacity of the Plant: The licensed capacity for the unit and the installed capacity. Whether
the capacity is based on single, double or round the clock needs to be specified with timing.
j. Technology selected and R & D Activity: The chosen technology for the product. Whether it
is available or need to be procured from abroad. Cost of such procurement. Whether unit needs
an R & D unit. If needed when? Along with set up of new plant or at a future date .

III. Market Potential

A report on the study of the market potential for the product chosen furnishing demand supply
situation, growth of the demand over the years, projected demand, current supply situation, the
present demand, price the product could command, marketing strategies, distribution channels,
after sales service, credit sales, recovery systems, logistics requirements, projected sales over few
months / years after start up.

IV. Capital Costs and Sources of Finance

A detailed assessment of the capital required. This should include cost of building, cost of getting
power sanctioned, serviced; cost of getting water supply; cost of plant and machinery items, its
transportation, installation and commissioning; sources of finances owners stakes borrowing

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from relatives and friends, borrowing from financial institutions, cost of borrowings, etc. Should
form part of the PR.

V. Assessment of Working Capital requirements

Requirement of working capital to be worked out in detail and furnished in the report. Recurring
expenses like rents, power bill, water bill, salaries & wages, raw material bills, credit period for
raw materials and other consumables, outstanding bills receivable, credit period for sales bills,
lead time for procurement or materials, stock period for materials, etc. form the basis for
calculation of working capital.

VI. Other Financial Aspects

Cost of Production, projected sales, profits, revenues, profit and loss account, cash flow
statement, should be furnished in detail in the PR. A break-even analysis giving details of level
of sales or production at which point the company would reach a no loss-no profit stage. When in
future this point is likely to be achieved.

VII. Economic and Social Variables

Details of employment generation, utilization of local resources, development of local area,

development of ancillaries,

import substitution potential, export potential etc. are to be detailed

in the report.

Social responsibilities viz. damage to society in the form of pollution, cost of such pollution,
pollution control expenses, effluent treatment costs etc should be accepted by the entrepreneurs.

VIII. Project Implementation

Detailed sequence of events leading to completion of all tasks and implementation of the
projected should be mentioned in the project report.

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8.7 Guidelines by Planning Commission for Project report

According to the guidelines, a feasibility report should be prepared for the project. This report lies
between the Project formulation stage and the appraisal and sanction stage. The guidelines are:
I. General Information

The Feasibility report must contain the analysis of the industry to which it belongs.

It should discuss the type of industry and its past performance.

II. Preliminary Analysis of Alternatives

The report should discuss the supply and demand gap in the industry.

This should contain the details of total production capacity available in the existing units, the
existing demand and the gap by further capacity enhancement.

It should also project the possible return on investment based on future demand.

III. Project Description

Report should discuss the details of technology and process chosen for the project.

The location of the project and possible environmental impact should be discussed.

It should also discuss various requirements like capital requirement, power, water, other utilities
requirement.

IV. Marketing Plan

Demand for the product, market areas covered, distribution, pricing, etc. should be discussed.

V. Capital Requirements and Costs

Information with regard to investment on capital items with cost breakup must be presented in
the report.

VI. Operating Requirements and Cost

Costs related to commercial production covering raw materials, labour, utilities, salaries, repairs,
maintenance, rent, interest liability, transportation, sales and marketing expenses etc, should be
included in the report in detail.

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VII. Financial Analysis

Financial viability of the project is very important.

A proforma balance sheet, details of description, clearance of foreign exchange, details of any
income tax rebate, incentives for back word areas are to be included..

VIII. Economic Analysis

Social profitability analysis should be made.

Impact of the operations on foreign trade, direct costs and benefits are to be reflected in the report

IX. Miscellaneous Aspects.

Any other relevant information pertaining to the size of the project could be shown in the report.

8.8 Network Analysis

Network analysis is one of the most popular techniques used for planning, scheduling,
monitoring, and coordinating large and complex projects comprising of a number of activities.

In any project there are a number of activities which need to start and complete.

In network analysis symbols are used to mark the start and finish of each activity and the relation
between them is also reflected.

This is done for all activities until the entire project is completed.

The lines joining the various start and end points of different activities appear to be a network of
lines, hence the name, network analysis.

From the net work a path can be traced for activities that take the least time and for those that
take the most time.

Thus a manager can focus on key areas to ensure that the longest path activities do get delayed.
Else the project itself get delayed.

Other activities are easy to monitor using the technique.

Some of the techniques in use for Network Analysis are

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Programme Evaluation and Review Technique (PERT)

Critical Path Method (CPM)
Line of Balance (LOB)
Graphical Evaluation and Review Technique (GERT)
Workshop Analysis and Scheduling Programme (WASP)
Of the techniques available the PERT and CPM are the most widely used in project management.
8.8.1 Programme Evaluation and Review Technique (PERT)

PERT was developed by the Special Project Office of the US Navy in 1958 to plan and control
the huge Polaris Submarine programme.

The use of the technique resulted in the project was completed ahead of schedule.

PERT can be applied for any new project. It involves scheduling the sequence of activities to be
completed in order to accomplish the project within the shortest time possible.

It helps reduce both time as well as cost.

Steps involved in PERT

Defining the job or project to be done.
Listing the various activities involved in the project and drawing up a sequential relationship
between the activities.
Precisely noting the start and finish dates for each activity.
Placing the activities in sequential order on paper in the form of a network.
Estimating the time need for each activity and noting it against the activity in network
Determining the critical activities from the network which require closer monitoring.
Calculating the variability of project duration and probability of project completion in given period
of time.
Controlling the project

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PERT deals with the problem of uncertain activity time by application of statistical analysis to the
determination of estimated time for each activity of the project. Time is the basic measure in PERT and
to arrive at a reliable estimate three time estimates are used
Optimistic Time

The shortest time possible for finishing an activity all things going well

Pessimistic Time

The longest time conceivable for finishing an activity with all hurdles

Most Likely Time

It is the best estimate at what normall would occur

The three different times give a measure of relative uncertainty involved in the activity. The mean
estimated time is calculated based on these three times.
te = (to + 4tm + tp) / 6
where te is the mean estimated time for an activity, to is the optimistic time, tm the most likely time and
tp the pessimistic time.

Advantages of PERT
It determines the time required for completing each activity and the total time for the project
It helps completion of projects within the expected time
It helps in the management of uncertainties involved in the project thereby reducing element of
risk
It enables detailed planning of activities.
It stresses the need for correct action at any given time of the project which ensures project
completion

on time

It compels management to plan and predict project before it begins

It establishes analytical approach to planning
It permits control by exception and better management of resources
It focuses attention on critical activities because delay in these activities would delay the entire
project

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PERT is useful for planning and controlling of a project as it takes into consideration the time
factor which is uncertain
PERT is a comprehensive tool which helps management from inception to completion of project
It provides updated information about the project
It minimizes delays and interruptions
It influences the right action at the right time and at the right time in the organization.
It clearly shows the dependency relations between work tasks.

Limitations of PERT
PERT emphasizes only on time and not costs or any other resource.
It is difficult to provide correct time estimates for new activities.
Time estimates sometimes act as a limitation to the implementation of the project.
For effective control of a project using PERT it requires frequent analysis of the project, updates
and revision of calculations which is a costly affair and takes time.
There may be errors in the time estimates.
It does not suit routine planning of recurring events.

8.8.2 CPM

CPM was developed by the Dupont and Remington Rand companies sometime in 1956 to help
the process of scheduling maintenance of chemical plants.

CPM differentiates between Planning and Scheduling of the project.

Planning refers to determination of the activities to be accomplished in the project.

Scheduling refers to the introduction time schedules for each activity.

The duration of different activities in CPM is deterministic. (In PERT it is estimated).

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In CPM there is a precise known time for each activity of the project.

CPM uses two cost estimates for each activity One for normal situation and the other for crash
situation. Crashing is a reducing of time for an activity by adding more resources.

CPM is used for optimum resource allocation and minimizing overall cost of the project.

The critical paths in the CPM chart are highlighted by either making them darker or drawing a
double line for the activities in the critical path.

CPM charts are similar to that of PERT charts and are sometimes referred to as PERT / CPM
Charts

Steps involved in CPM

Systematic division of the activities of the project.
Determine the time for each activity and event.
Calculate the earliest start and finish time for each event.
Determine the float for each activity on the basis of earliest start and finish times.
Determine the total duration of the project.
Shift resource to critical areas and thereby optimize it.
Update network resources.
Advantages of CPM

Helps in ascertaining time schedules for activities having sequential relationships

CPM helps to know the sequence of jobs that determine the earliest completion of the project.

It identifies the most critical elements of the process and helps management focus on those

Helps in better project planning.

It helps management to divert resources from non critical areas to critical areas. Thus affects
optimum utilization of resources.

Limitations of CPM

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CPM operates on assumption of precise time known for each activity. This might not be
correct time.
It is not based on statistical analysis of time estimation.
Every time a change is introduced a new evaluation has to be made for ascertaining a new
critical path.
CPM is not a panacea for all ills. It cannot by itself solve problems, it facilitates a solution for
problems.
Difference between PERT and CPM
PERT

CPM

Its origin is military

Event oriented approach
Allows uncertainty
It has three time estimates
Time based
Probabilistic model
There is no demarcation between critical and
non-critical activities
It averages time
It is suitable where high precision is required in
time estimates.

Its origin is industry

Activity oriented approach
Does not allow uncertainty
Only single time estimates
Cost based
Deterministic model
Marks critical activities
Does not have average time
Suitable where requirement of precision is
reasonable.

8.9 Errors of Project Report

In the preparation of a Project report errors could occur in the following areas:

Product Selection

It is seen that many a units have failed because of improper selection of product.

Proper study or survey has not been carried out before taking a decision with regard the
need for the product, its demand, its life cycle, competition, availability of raw materials,
technology, skilled labour, etc.
For eg. one gets carried away by a particular company in your locality
doing roaring business in a

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similar plant. Now, if one fails to assess that the existing

company has a

tie up with a relative to supply raw material at a low price, or the

entrepreneur is operating with his own funds with minimal borrowings
from bank, therefore his interest liability is very less, etc. The new unit
would not succeed since he would not be able to compete with the existing
company.

Capacity utilization estimates

Erroneous and overoptimistic estimates with regard to capacity utilization.

Current power situation, labour problems not duly considered leading to under-utilization
of capacity that estimated leading to inability to reach break even.

Market study

It is absolutely essential to ascertain the market.

One cannot assume the need for one product.

Failure to collect relevant data, consumption pattern, existing units supplying similar
products, total quantity supplied by all units as against estimated demand for the product,
pricing of the product, etc. leads to failure of the product taking off in the market.

Improper market study leading to overestimation of customer needs would surely lead to
failure.

Technology Selection

Selection of correct technology and proper implementation is essential for the product to
be of good quality and priced competitively.
Eg. A service provider Online Ticket booking facility. If the system is a slow
one taking a lot of

time for internet connection or commands to be executed.

The business will surely be affected particularly during the peak seasons. A
competitor with a faster machine would end up booking more tickets per day,
thereby earning more.

Location selection

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If the location selected is not suitable on account of it being away from the railway
station, bus station, market for the product, market for purchases of raw materials, tools,
consumables, etc then the unit suffers. It also becomes difficult to find good labour.
This type of error occurs primarily when one chooses a location close to his own dwelling
which might not be ideal for the industry.
It is also likely that the unit location has been chosen on account of subsidies, sanctions,
relaxations etc given by the govt. bodies to set up the unit. Unless the gain due to the sops
offered by the govt. is more than loss (extra expenses) incurred, the location would be
considered to be wrong.

Constitution of enterprise

The form of the enterprise proprietary, partnership, private limited company is

important tool for the success of a unit.

If there are too many partners instead of one owner drawing for his livelihood then the
unit is likely to fail, unless the business is roaring and each partners also is a working
partner (resulting in lesser no. of employees)

Estimation errors

It is quite likely that the estimates made by the entrepreneur are erroneous. Failure to
make realistic cost estimates and time estimates could land one in a crisis situation.

Failure to understand sociological and ecological impact could land one in a mess.

Failure to anticipate accurately the cash flow would lead to a funds crunch situation.

Lack of sufficient skills in preparation of project report.

8.10 Project Appraisal

This is an activity carried out by the financial institutions before giving funds.

Project Appraisal involves the assessment of a project in terms of technical feasibility, financial
viability, social and economic liability.

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It also studies the inter-relationship of various aspects of the project.

In short the financiers study the worthiness of the project before investing to ensure that a
nothing goes wrong.

Project appraisal is carried out for the following aspects

Economic Analysis
Financial Analysis
Technical Feasibility
Market Analysis and
Managerial Competency.

Economic Analysis

Apprises the financier of the economics of the project.

The requirement and availability of raw materials, labour; the capacity utilisation proposed;
the expected sales, expenses and profit; continued demand for the product; location of the
project, govt. concessions, subsidies, incentives, etc for setting up of unit in backward
areas.

Financial Analysis

is very important pre-requisite for any unit set to be set up.

All other resources are possible to be brought at one place only when the main resource
Finance is available in sufficient or required quantity.

Financial analysis involves the assessment of funds required for

Capital investment required for land, building, plant, machinery, power and water
connection, etc.
Working capital required for recurring expenses of salaries, rents, power and
water charges, raw materials, consumables, conveyance, incidental expenses, etc.

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It also assess the break-even point which ascertains the level of sales required to
reach a no profit = no loss state, beyond which the unit starts making profits.

Technical Feasibility

assess the sufficiency of the adopted technology to produce the projected volume of
production on which the sales and profit figures are based.

It also assess whether the technical knowledge and skills are available to make use of the
technology. Whether it is available in house or needs to be brought in.

Market Analysis

Production has no value unless the produced goods are sold.

The customer targeted, the current demand, the projected demand for the product, the
competition, pricing, salability of the product all form part of market analysis.

Managerial Competency

is essential for any unit to succeed.

All other resources being available and in place if the unit is not managed properly it would
still fail.

It is not guaranteed that a technically sound person would make a good businessman. On
the contrary there are cases of exceptionally good managers being able to extract the best
out of the available resources and making the venture profitable. Therefore it is necessary
to have managerial competency analysis for the project.

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8.11 Identification of Business Opportunities

Some of the sources of business ideas are
Unfulfilled demand is always a source for new business. However, as to why the perceived
demand has remained unfulfilled so far needs to be looked into! Nirma is an example.
Creative Ideas Ones own creative ideas can throw up business opportunities
Social and Economic Trends necessitates demand for new ideas.
Magazine, journals, research publications.
Govt. agencies and institutions set up as support agencies for SSIs.
Technology Utilization of existing technology as well as capitalizing on new technology
before it becomes common is a good business opportunity
Changes in Customer Needs. Having a pulse on the customers needs and catering to the
changes as and when they occur is a sure way of being a step ahead in the business.
Trade Fares / Exhibition / Technical exhibition / throw up a wide range of opportunities.

8.12 Market Feasibility Study

Market feasibility study involves collecting data with regard to the project, analyze it and study the
feasibility of the project. The following aspects are involved in a market study.
Nature of Market: reflects whether the market for the product or service is stable or volatile,
whether the market is monopolistic or not, whether the competition is healthy or cut throat,
etc
Demand: reflects the present, the growth in demand over the years, the future demand as
forecast by or expected, stability of demand, has the demand been rising steadily or there has
a fall in rise of demand. This shows the trend of the demand by which the future can be
forecast.

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Cost of Production: reflects the minimum economical production quantity required, its cost,
selling price based on the cost, whether this selling price fits in the existing market, etc. Cost
of production should necessarily be less for the product to be competitive.
Pricing and Profit: Selling Price is the single most important factor in the sales of any
product. Any product that is priced lower fetches a better market. Same price objects offering
better features attract customers better. Profits are directly linked to sales. Pricing should be
correct. Initially pricing could be at the expense of lesser profits to grab market space.
Market Share: Correct pricing and features of the product ensures the market share in the
business. Share of the market is to be correctly estimated.
Target Market: A proper study is required as to the target market. This has a bearing on
the type of product as well as its pricing. Whether the target is the upper income group,
middle or lower income section of society plays an important part in deciding the type of
product itself, its pricing, packing, etc.

8.13 Technical Feasibility Study

In technical feasibility study the following aspects are considered:
Location of Project: Whether the location is urban, semi-urban or rural is important. This
has a bearing on nearness of target market, availability of labour, raw materials, etc. which
have a bearing on the pricing as well as sales and profitability. Also rural locations may fetch
subsidies / concessions from the government.
Utilities: study involves study of availability of water, electricity, fuel, petrol, diesel, etc.,
near the location of the unit.
Availability of raw materials: reflects the availability of raw material of correct
specifications as close as possible to the unit. Alternative materials should also be available.
Land / Building / Size: needs are required to be analysed properly. Size of land, type of
building, its foundation, flooring, number of floors, etc are all required to be studied along
with the cost of provision of such facility.

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Selection of Machinery: involves the study of the type of machinery, quantity,

specifications, costs, source of supply, alternate machinery and costs, suppliers, technological
variations, applications, suitability, etc need to be studied in detail before selecting machinery
items.
Production Capacity: study involves study if production capacities required overall, to be
installed at present, to be installed in a phased manner, the capacity utilisation in the
immediate future and over time etc. are to be assessed in detail.
Staff requirement: Executives, officers, workers; technical, non technical, office staff.
Number required immediately starting the plant and total required once unit runs in full
swing are to be analysed and decided upon in advance. If necessary candidates could be short
listed also for ease of hiring at short notice.
Technical Feasibility: study is an elementary task. The availability of technologies for the
product, the type to be chosen, whether it is a tested technology or new one, whether it is
outdated or still in use, its cost and the effect of the technology on the costing etc are details
to be addressed before choosing the technology is adopted. Just cost alone may not suffice
since a less costly technology might give lesser production and thereby blunt the competitive
edge.

8.14 Financial Feasibility Study

The following aspects with regard to Financial Feasibility study are to be addressed:
Total Capital Cost of Project: includes Fixed Capital and Working Capital as well as the
cost of making available the Capital.
Sources of Capital: deals with assessing the sources of funds whether they are own funds,
interest free borrowings, bank borrowings at interest, cost of such borrowings, repayment
norms, etc. A good idea of such matters is essential before venturing into any project.
Whether the fixed and working capital is to be availed at one go or spread over some time is
also important to spread the interest as well as the repayment responsibility.

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Subsidy sources for additional finance: need to be studied in detail before set up of the
unit. By choosing an alternative suitable location where subsidies or concessions are
available which would make the project more viable is to be ascertained. Knowledge of the
extent of subsidies, how and when the amount would be released to the entrepreneur needs to
be known, a track record study is also required to confirm that the monies are made available
to the entrepreneur at the estimated or stated point of time.
Finance for future development: Other than funds required for starting the unit one must
also plan for future development, expansion, etc. Working capital requirements are to be
arranged in advance for at least three months. An extra months provision would always
come in handy.
Break Even Analysis: is a study that tells the level of production at which the unit reaches a
no loss no profit state. Production and sales beyond it earns profit for the unit. Knowledge
of this is very important since one can be focused towards attaining this level first at the
shortest possible time.
Estimation of Cash flow: In business it is always the case that one gets some goods on credit
where the payment has to be effected after a fixed period of time. Similarly on the other hand
goods are rarely sold for cash. They are also sold on credit and the payment is received after a
fixed period of time. It is common in an industry that the duration of credit for purchases is
lesser than that of sales. Therefore it becomes necessary to make sufficient provision for
working capital. Also as to how the accrued funds are utilized is to be detailed in an
organized manner called the Cash Flow statement. It reflects where the money has come from
sales receipts or bank borrowing and where it is spent rents, salaries, power bill, water
bill, sales tax, professional tax, telephones bill, interest on borrowing, incidental expenses,
etc.
Return on Investment: reflects the return on the investment made by the investors and how
much they get in the near future and in the long run.
Proposed Balance Sheet: reflects the assets of the unit, the liabilities, depreciation, interest
burden, profit / loss as the case may be. Initially the projected sheet balance is most likely to
show a projected loss which once the unit breaks even will start making profit. However the

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initial profits may go toward adjusting the previous years losses after which the unit starts
making net profit.
Cost of Labour and Technology: The cost of the technology and the cost of the labour to
utilize the technology need to be properly studied. Detailed studies for alternative
technologies would help decide on choosing an appropriate and financially suitable
technology

8.15 Social Feasibility Study

Location should be such that there is no objection from the neighbors as regards the setting
up of the unit. There should not be any objection from any government agencies or bodies.
Social Problems It must be ensured that the conduct of the industrial unit is conducive and
upholds the social peace and set up. Unruly, drunken behavior of the employees of the unit
cause social problems. It must be ensured that all concerned behave well and within the
written laws of the land as well as the unwritten social tenets.
Pollution It must be ensured that the industrial unit ensures pollution free working.
Pollution applies to air smoke, foul odour etc.
Water improper drainage, overflowing drain having industrial untreated waste, etc
Area pollution dumping of industrial solid waste in common areas outside the unit,
solid waste having sharp objects like glass pieces, needles, etc.
Noise pollution unit making noise causing disturbance to neighbors. Peace is
disturbed

Other Problems Any other problem related to people, authorities, society etc needs to be
studied and addressed.

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