UNIT 8

PREPARATION OF PROJECT


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Introduction :
An Entrepreneur , before he sets up an enterprise , wants to satisfy himself that it is a
Profitable Proposition. He wants to gather critical information & take decisions pertaining to
arious facets !Aspects" # Technical Arrangement , Plant !achiner", !ar#et, Financial
Arrangement, $ocation, %tatutor" Clearance&, in order that the ta&#& of e&ta'li&hing the
(ro)ect, to &ome e*tent managing it later, 'ecome& ea&".
A pro$ect report is an outcome of an e%ercise meant to check the iability of an
enterprise & analy&e & firm up its essential parameters. 'here are arious phrases in ogue to
refer to pro$ect report document.

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'hey are :

a. +u&ine&& Plan.
b. Fea&i'ilit" Re(ort.
c. Techno Economic Fea&i'ilit" Re(ort.
d. ,ia'ilit" Re(ort.

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!eaning of Pro)ect :
'he ery foundation of an enterprise is the Pro$ect. Hence, the *uccess or +ailure of an
enterprise largely depends upon the Pro$ect. ,n *imple -ords, a Pro$ect is an ,dea or a Plan that
isintended to be carried out. 'he dictionary meaning of Pro$ect is that it is a *cheme of
something intended to be done . a Proposal for an /ndertaking, design, speculatie imagination
etc.

'wo ,mportant aspects hae to be borne in mind , 0i&., A scheme & speculatie
imagination. 'hat is, innoatie & ision form an integral aspect of a Pro$ect Planning & these are
also the basic characteristics of an entrepreneur. i.e., Entrepreneur is always innoatie & has a
0ision.

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*eeral Economists & 2ankers hae defined a Pro$ect in different ways. 3et us also e%amine
a few other definitions of 4Pro$ect.5

-efinition . : 'he *mallest /nit of ,nestment Actiity to be considered in the case of
Programming.
-efinition / : 'he -orld 2ank has defined Pro$ect as an approal for a capital inestment to
deelop facilities to proide 6oods & *erices.
-efinition 0 : A Pro$ect is an appraisal for ,nestment with the definite aim of producing a flow
of 7utput oer a specified period of time.

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-efinition 1 :
A Pro$ect is defined as the whole comple% of actiities inoled in using resources to gain
benefits.
-efinition 2 :
A Pro$ect can be defined as a *cientifically eoled work plan deised to achiee a specific
ob$ectie within a specified period of time etc etc.

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After e%amining all the aboe definitions of a Pro$ect, it i& im(ortant to note that 3hile
(ro)ect& can differ in their &i4e, nature, o')ecti5e&, time duration com(le*it" , "et the"
ha5e the follo3ing Three Attri'ute& :
1. A :ourse of Action.
(. *pecific 7b$ectie.
). ;efined 'ime perspectie !period".

*o, we can say that eery Pro$ect has a starting point , an end point with specific
ob$ecties.

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Characteri&tic& of a Pro)ect :
Eery Pro$ect has +our 2asic :haracteristics :
1. ,nestment Pattern.
(. 2enefits or 6ains.
). 'ime 3imit &
1. 3ocation.

,n *hort, 4 'he Pro$ect is an Economic Actiity with well defined ob$ecties & haing a
specific beginning & end.5 ,t should be amenable to Planning, +inancing & ,mplementation as a
/nit3here 'oth Co&t& Return& are mea&ura'le. A well planned Pro$ect includes a :orrect
:onsideration of Alternaties , identification of =ey ,ssues, :ompactness, enforceability etc. ,t
should be Neat, Clear Cut %(ecific.

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+rom the Point of ,ie3 of Re&ource Allocation, a Pro$ect can be considered as a
proposal inoling :apital ,nestment for the purpose of deeloping facilities to proide 6oods &
*erices.
'he 6oods or *erices which the Pro$ect seeks to proide differ widely. E*am(le& are
gien below :
a. A Pro$ect may proide the establishment of a ?odern :ast ,ron +oundry to
manufacture castings for automobile industries.
b. A Pro$ect may inole establishing an ,nformation 'echnology :ompany to deelop
*oftware Packages for E%ports & so on & so forth.

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-hateer the nature of the Pro$ect, a Pro$ect will inole allocation & consumption of
resources, on the one hand & generation of resources, goods & serices on the other.
Pro)ect Cla&&ification :
'hey are classified on the following basis : !!a)or Cla&&ification&" :
1. Auantifiable & Bon Auantifiable Pro$ects.
(. *ectoral Pro$ects.
). 'echno # Economic Pro$ects.

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1" 6uantifia'le Non 6uantifia'le Pro)ect& :
Pro$ects for which a plausible Auantitatie Assessment of 'enefit& can be made are
called as 4Auantifiable Pro$ects5. Egs of this category are pro$ects concerned with ,ndustrial
;eelopment, Power 6eneration, ?ineral ;eelopment etc.
7n the 7ther Hand, 4Bon Auantifiable Pro$ects5 are those in which a plausible
Duantitatie assessment of'enefit& cannot be made. Egs of Bon Auantifiable Pro$ects are
pro$ects inoling Health, Education, & defense.


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(" %ectoral Pro)ect& :
'he Planning :ommission of ,ndia has accepted *ectoral 2ase as the :riterion for
:lassification of Pro$ects. According to this :lassification, Pro$ects may be classified as :
a" Agriculture & Allied *ector.
b" ,rrigation & Power *ector.
c" ,ndustry & ?ining *ector.
d" 'ransport & :ommunication *ector.
e" *ocial *erices *ector.
f" ?iscellaneous *ector.
'his *ystem of :lassification has been found useful in Eesource Allocation, especially at
?acro 3eel.

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)" Techno Economic Pro)ect& :
Pro$ects are also classified on the basis of their 'echno # Economic :haracteristics.
'hree ?ain 6roups of :lassification in this :ategory are gien below.
!i" Factor Inten&it" Oriented Cla&&ification :
7n the basis of this :lassification, Pro)ect& ma" 'e cla&&ified a& Ca(ital Inten&i5e or
$a'or Inten&i5e or Po3er Inten&i5e depending upon 3arge *cale ,nestment in Plant &
?achinery or Human Eesources or High Power ,nput is inoled.


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!ii" Cau&ation Oriented Cla&&ification :
,n this :ategory, Pro$ects may be classified as ;emand 2ased or Eaw ?aterial 2ased
Pro$ects. 'he ery e%istence of demand for certain goods or serices makes the Pro$ect demand
based & the aailability of certain Eaw materials , *kills or other ,nputs makes the Pro$ect Eaw
?aterial 2ased.
!iii" !agnitude Oriented Cla&&ification :
Here, the :lassification of Pro$ects is based on the *i&e of the :apital inoled in the
Pro$ects. ;epending on the 'otal Pro$ect ,nestment, may be Pro$ects may be classified
as $arge %cale, !edium %cale %mall %cale Pro)ect&.
,t is to be noted that, Techno Economic Characteri&tic&based :lassification is
facilitating the process of feasibility appraisal.

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Pro)ect Identification :
,dentification of a single or multiple pro$ect ideas is crucial for the purpose of conerting
the Entrepreneurial urge into a recogni&able form. ,dentification of iable pro$ects or search for
Pro$ect ideas is a beginning # an Ice +rea#er. ,t is the first & most important step in the actual
entrepreneurial $ourney. 7ell 'egun i& half done. *o, the success or failure of an enterprise is
built , to an e%tent on a suitable Pro$ect ,dentification & *election.

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'herefore, establishing yourself as a successful entrepreneur depends to a great e%tent
upon choosing a 8ood Pro)ect or Idea. 'hat idea must not only be good for the ?arket but also
be good for the Pro$ect & good for the Entrepreneur. !o&t im(ortant, the idea &hould gi5e
&ati&f"ing re&ult&.
As an Entrepreneur, when you are searching for an idea suitable for your commitment,
background & e%perience, do not pursue one idea at a time. ;eelop fie or een more pro$ect
ideas in parallel until one emerges so appropriate, that it begins to dominate your thoughts.


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:hoosing an idea is 9uite difficult & the Entrepreneur has to weigh ob$ectiely his intrinsic
capabilities in finali&ing an idea.
'he Pro)ect Idea& can 'e di&co5ered from 5ariou& internal e*ternal &ource&: The&e
ma" include :
a" =nowledge of Potential :ustomer Beeds.
b" -atching Emerging 'rends in ;emand for certain Products F *erices & their market si&e
& potential.
c" *cope for producing substitute products which is economical & haing better features.

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d" 6oing thro arious Professional ?aga&ines F Gournals catering to specific interests like
:omputers, Electronics & 'elecommunication, ?ech, Electrical, ?etalurgical, :hemicals, ;rugs
etc. etc.
e" *uccess *tories of =nown Entrepreneurs or friends or relaties.
f" 0isiting Bational & ,nternational 'rade +airs & E%hibitions displaying Bew Products &
*erices.
g" ?eeting 'echnical F ,ndustrial :onsultants.
h" Bew Product!s" introduced by other enterprises etc etcH.

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All of these *ources put together may gie a few ,deas about the possible pro$ects to be
e%amined as the +inal Pro$ect. 'his Process of identifying Pro$ect ,deas is referred to as
4O((ortunit" %canning Identification:5
After going thro the aboe process, assume that you hae been able to get *een Pro$ect
,deas as a result of the aboe analysis.
+rom the *een Pro$ect ,deas you hae in mind, finally you hae to decide & choose the
7ne ?ost Appropriate & Potential Pro$ect idea going thro the follo3ing %election Proce&& :


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Pro)ect %election :
After deciding on a few Pro$ect ideas, the Entrepreneur has to finall" select, 7ne
Pro$ect ,dea most suited depending on the following criteria. A tool generally used for this
purpose is called as 4%7OT5 Analysis is done. 'he ,ntending Entrepreneur analyses his
*trengths & -eaknesses, as well as 7pportunities F :ompetitie Adantages & 'hreats F
:hallenges offered by each of the Pro$ect ,deas. 7n the basis of this Analysis, the ?ost *uitable
Pro$ect ,dea is finally selected to conert it into an Enterprise. 'his Process is also called as a
4;eroing In Proce&&.5

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A few ,mportant :riteria are gien below :
1. In5e&tment %i4e :
'his is a ery important criterion to decide success or failure of the Pro$ect. 'he
Entrepreneur should assess the Economical *i&e of the Plant & the 'otal ,nestment reDd &
should assess his +inancial :apability to pool in at least about (8 I of the ,nestment reDd for
the Pro$ect. Entrepreneur therefore,&hould &elect onl" &uch Pro)ect& 3hich are 3ithin hi&
financial re&ource&. Jou cannot establish an Enterprise only on borrowed funds & this may lead
to seere financial problems in the ,nitial *tages of the Pro$ect ,mplementation itself.






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(" $ocation :
3ocation chosen should hae 6ood ,nfrastructural +acilities like 6ood Approach
Eoad , 'ransportation +acilities, :ommunication +acilities, Aailability of Power, -ater & reDd
3abor. Also, 3ocation chosen should hae good pro%imity to the Eaw ?aterials as well as to the
?arket. Entrepreneurs should also e%amine the :oncessions & ,ncenties offered for a Particular
3ocation as per the 6ot ,ndustrial Policy.
,t is also adisable to select a location nearer to bigger cities or ,ndustrially +orward
Areas rather then setting up an Enterprise in Eemote rural or 2ackward Areas $ust for the sake of
getting better or higher incenties offered by the 6ot.

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)" Technolog" :
'he Pro$ect chosen should not be for a Product which reDuires sophisticated technology,
necessitating +oreign 'echnical :ollaboration. ,t is better to go in for a Product with a proen
technology that is Indigenou&l" aailable & where the Entrepreneur himself is well ersed with
the reDd technology.

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1" Plant !achinerie& :
-hen deciding on a Pro$ect, the Entrepreneur should assess the aailability of High
Auality Plant & ?achineriesindigenou&l". As far as possible, a Bew +irst Pro$ect by the
Entrepreneur should not be planned on ,mported Plant & ?achineries because of the problems &
delays inariably associated with ,mports.
'his may lead to :ost Escalation of the Pro$ect, & may affect the implementation
schedule of the Pro$ect. 7ne should remember that one should not compromise on the Auality of
the EDuipment een if there are little e%pensie in the beginning , as they will pay back in the
3ong Eun due to uninterrupted working. :heap Poor Auality eDuipment leads to freDuent
breakdowns.


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8" !ar#eting :
'he *uccess of any Enterprise finally depends on ?arketing :apability of ones 6oods F
Products F *erices. ,t is not adisable to get into a Pro$ect (articularl" the fir&t, which would
mean surial amidst :ut 'hroat :ompetition inoling ;irect *elling to a large number of
/ltimate :ustomers. 7ne should go in for Products with a 3imited Bumber !say 1C or 18" of
established ,ndustrial :ustomers.
'his also means that there is a Time Inter5al in5ol5ed in 'et3een Pro)ect&
Identification Final Pro)ect& %election.


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Pro)ect Re(ort :
;ictionary meaning of Pro$ect is a *cheme or a ;esign , a Proposal of something
intended or deised. An Entrepreneur after finali&ing & selecting a particular Pro$ect for setting up
of his enterprise wants to satisfy himself that this is a profitable proposal. He wants to gather
:ritical ,nformation & take decisions pertaining to arious facets !issues" like 'echnical
Arrangement, Arrangement of +inancial Eesources, Plant & ?achinery , ?arket, 3ocation,
*tatutory :learances in order that his task becomes easy.
,n fact, the Pro$ect Eeport is a 2usiness Plan, this is an 7utcome of an e%ercise meant
to check the iability of an Enterprise & analy&e & firm up its essential parameters. ,n other
words, Pro$ect Eeport or 2usiness Plan is a -ritten ;ocument of what an Entrepreneur proposes
to take up & his course of action to establish his Enterprise. 'he Pro$ect Eeport seres like
a Road !a( to reach the ;estination determined by the Entrepreneur. 'hus, a Pro$ect Eeport
can best be defined as a well eoled course of action deised to achie5e the %(ecified
O')ecti5e& 3ithin a &(ecified (eriod of time.


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Need %ignificance of a Pro)ect Re(ort :
An O')ecti5e 3ithout a Plan i& a -ream. 'he Preparation of a Pro$ect Eeport is of great
significance for the Entrepreneur as well as the other *take Holders in his business.
'here is a ariety of purposes which a Pro$ect Eeport or a 2usiness Plan will fulfill. Hence,
its need in ?odern 2usiness. 'hese purposes are as follows :

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,ts helps an Entrepreneur $udge the iability & profitability of a gien enterprise
proposal. ,f it reeals a proposal to be uniable, the Entrepreneur 3ill a5oid a gra5e
error of in5e&ting in an Un&ound ,enture.
,t is the basis for a ;eelopment 2ank to sanction 3ong 'erm +inancial Assistance &
a :ommercial 2ank to proide -orking :apital Assistance.
,t aids the process of firming up 'echnical Arrangement , :hoosing a 3ocation,
*electing Plant & ?achinery, ;etermining ?an Power , & /tility needs etc etc.. reDd for
Pro$ect ,mplementation.
,t generates a =nowledge 2ase for the Entrepreneur concerning such dierse facets
as *tructure of Enterprise # ,ndustry, ?arket, Eaw ?aterial supply & 'echnology etc.
,t educates the Entrepreneur regarding the ;egree of Eisk underlying the Enterprise
Proposal.
It 'ring& into &har( focu& the <e" Performance -eterminant& in the cho&en line
of +u&ine&& & thus makes the Entrepreneur reali&e the need to pay special attention to
such determinants.

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An Entrepreneur, thanks to his initial enthusiasm, often fails to notice the blind spots in
his proposal. 'he biggest adantage of a 2P is that it enables him to look at the proposal in a
dispassionate , ob$ectie light & encourages him to search for solutions with reference to the
pitfalls in his proposal.
+inally, once the Pro$ect is implemented & is commissioned , 2P seres as a tool to
educate the Entrepreneur by pointing out the assumptions which proed to be true & those which
were too 7ptimistic or too Pessimistic. -here, the Entrepreneur embark on another Pro$ect which
could be ;iersification or E%pansion, the lessons he learnt from the preious one help him to be
more realistic & hence successful in his new 2P.

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Content& of a Pro)ect Re(ort :
A Pro$ect Eeport needs to be done F prepared with great care & consideration. 'he
,mportant :ontents of a 6ood Pro$ect Eeport are gien below :
a" 8eneral Information :
,nformation on Product Profile & Product ;etails.
b" Promoter=&> :
His F Her F 'heir Educational Aualification , -ork E%perience , Pro$ect related e%perience,
special achieements.
c" $ocation :
E%act proposed location of the Pro$ect, lease or freehold, locational adantages.

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d" $and +uilding :
3and areas, built up area, type of construction, cost of construction, detailed plan & cost
estimate along with Plant layout.
e" Plant !achiner" :
;etails of ?achinery reDd , :apacity, *uppliers, :ost, 0arious Alternaties Aailable, :ost
of other ?iscellaneous Assets.
f" Production Proce&& :
;escription of Production Process , Process :hart, 'echnical =now How, 'echnology
Alternaties Aailable, Production Programme etc.
g" Utilitie& :
-ater , Power, *team, :ompressed Air EeDuirements, +uel, :oal F 7il etc., :ost
Estimates, *ources of /tilities.
h" Tran&(ort Communication :
?ode, its associated :osts.
i" Ra3 !aterial :
3ist of Eaw ?aterials reDd by Auality & Auantity , *ources of Procurement, :ost of Eaw
?aterials, 'ie /p Arrangements, if any , for Procurement of Eaw ?aterials, Alternatie Eaw
?aterials , if any.

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$" !an Po3er :
'he EeDuirement such as *killed, *emi *killed, & /n *killed !Helpers", Places of
?anpower Aailability, reDuirement of 'raining & its :ost.
k" Product& :
Product ?i%, Product *tandard, Estimated Production & *ales +igures, Alternatie Product
*ubstitutes , if any.
l" !ar#et :
End # /sers of Products, ;istribution of ?arket as 3ocal, Bational, ,nternational, 'rade
Practices, *ales Promotion deices etc..

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m" Re9uirement of 7or#ing Ca(ital :
-orking :apital EeDd , *ources of -orking :apital, need for :ollateral *ecurity, Bature &
e%tent of :redit facilities offered & aailable.
n" Re9uirement of Fund& :
2reak up of 'otal Pro$ect :ost in terms of :osts of 3and, 2uilding, Plant & ?achinery, ?isc.
+i%ed Assets, Preliminary & Pre K7peratie E%penses, :ontingencies & ?argin ?oney for
-orking :apital, +inancial Arrangements for meeting the :ost of *etting up of the Pro$ect.
o" Co&t of Production Profita'ilit" of fir&t fi5e "ear&, +rea# E5en Anal"&i&, %chedule
of Im(lementation etc etcH

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Formulation of a -etailed Pro)ect Re(ort =+u&ine&& Plan +P> :
7nce a Potential Entre(reneur has made a tentatie decision of e%ploiting a specific
opportunity , he will be adised to prepare a ;etailed Pro$ect Eeport !;PE". A thoughtfully
prepared Pro$ect Eeport is an important tool as it helps him in anticipating & soling problems.
,t has been e%perienced that in preparing ;PE , the Entrepreneur is forced to consider
seeral +inancial & ,mplementation Problems well in adance, giing him enough time to sole or
prepare for them.

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1" For 3hom i& the Pro)ect Re(ort :
'his is meant for the Entrepreneur himself. 'his is an essential document to procure
assistance from +inancial ,nstitutions & to fulfill other formalities for the successful implementation
of the Pro$ect.
(" 7ho (re(are& the Pro)ect Re(ort :
?any a time, the Entrepreneurs feel that he could reliee himself of the botheration of
preparing a Pro$ect Eeport by engaging a :onsultant.


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