Section C : Chapter 11

PROJECT REPORT A KEY DOCUMENT FOR SSI

A project report provides all necessary information about the unit to be set up. It is useful
for the entrepreneur and for various development agencies who will help the entrepreneur
setting up the unit. If the unit is well prepared, it will obviate various difficulties that
could arise while setting the unit. If the report is well prepared, it will obviate various
difficulties that could arise while setting up the project, especially while obtaining loans.
A wealth of information is available in the country today, which helps the entrepreneur in
preparing the project report. This information is available through the various branches of
SISI (Small Industries Services Institute) works through the SIDO (Small Industries
Development Organisation). This works under the Ministry of Industries. It publishes
Guidelines on Industries, which contains a lot of statistical information on a large number
of items. For each item the information deals with:

Present installed capacity

Production & capacity utilization

Government approach towards the item.

This information helps to ease the task of the entrepreneur. All the entrepreneur has to do
now is

Decide on the production and activity level

Match financial resources with the amount required

Prepare the project report.

Institutions that help the entrepreneur in preparing the project report are

SISIs

SIDCs (State Industrial Development Corporations) and SSIDCs(State Small

Industries Development Corporations).

Technical Consultancy organizations set up by IDBI.

Specialized cells set up at Nationalized Banks.

The size of the project report depends upon the following:

The size of the unit to be set up.

The nature of production and the product

The amount of financial assistance required.

Project report consists of seven sections

Project Description

Market Potential

Capital Cost and Sources of Finance

Assessment of Working Capital Requirements

Other Financial Aspects.

Economic and Social Variables.

1. General Information:

This part must provide the following information:

Name and address of the entrepreneur
His/her qualifications, experience and capabilities
If there are any partners then the above details of the partners must also be included.
Sleeping Partners, if any, also must be mentioned. Bankers would like to assess the
project and also all the people behind the project.
Reference to the industry in which the product is to be manufactures must also be
included the following details must be presented:
Trends in industry
Past production trends
Future demands
A mention about the organization structure and the constitution of the firm
In case of a partnership, information regarding whether the firm is registered with the
Registrar of Firms of the Director of Industries must also be given. The provisional
certificate number and other details pertaining to the registration may be mentioned.
While registration with the Directorate of Industries is not compulsory in that the banks
will still entertain the proposal, it is always preferable because it proves helpful in the
following ways:
In obtaining power connection from the SEBs
In obtaining RM quotas when RM is in short supply

While dealing with other govt. agencies

Utility of the product and the range of products to be produced
Substitutes of the product, if any & also mention why the product will find a better
marketability than the substitutes e.g. Plastic buckets v/s Galvanized iron buckets:
Project Description:
This section must contain the following information:
Mention the site, indicate the town, street or industrial estate
Whether the land is owned or leased
In case the project is being set up in an approved industrial area whether permission has
been taken. If the project is not to be set up in the approved industrial area then indicate
whether a NOC (No Objection Certificate) has been obtained from the Local Municipal
Corporation.
Some suggestions on the choice of location: This would depend on the type of industry.
Industries may be classified into: Demand based , Resource based, Skill based, Footloose
Industries.

In case of demand-based industries, the location must be near the market.

In case of resources based industries (e.g. sugar industries), the location must be close
to the resource base.

In case of skill-based industries (e.g. carpet weaving, brassware), the location must be
close to the skill center.
For industries where open area is essential, mention about the covered and the open areas
must also be mentioned.
The physical infrastructure facilities available
The Raw Material whether imported on locally available, licensed or controlled. The
price availability and method procurement of the RM.
Availability of skilled labor communication facilities, transportation facilities, power and
fuel.
Availability of water: This assumes importance in industries such as ice plants, tanneries
and breweries.
Method of waste disposal.

How environment hazards are being dealt with noise pollution, effluent treatment
machine vibrations, etc.
The technology selected whether indigenous or imported. If imported, the name of the
foreign collaborator and the method of technology transfer.
Details of the manufacturing process.
Draw the production flow chart, if the manufacturing process is known, then mention the
following
Machines required for each sub-process
Their specifications, cost and capacity
Balancing equipment required and their cost. This will help in determining the additional
investment required and the additional number of units that can be produced
Quality Control arrangements and the testing and inspection equipment to be used.
Mention must also be made about arrangements made to obtain Agmark (for food based
industries) or ISI certification. & Market Potential:
This part must contain The total demand and supply position at present
Future demand and supply position
The demand supply gap. In case demand is greater than supply, mention how this will
affect profitability.
The expected price to be realized i.e. justify the price.
Statement of competitors prices
If your prices are greater then those of components. Justify how the high price has been
arrived at and why will your product sell at that price.
While some may argue that this would be tantamount to disclosure of your marketing
strategy, it is also true that banks would interested in how you are going to realize a price
that is higher than the prevailing market price.
Details of the Marketing Strategy. This should include the following
How is the product proposed to be sold? That is, what is the distribution network? Are
there any arrangements with distributors or suppliers?
Will you be an ancillary for another unit or will your product be sold by a reputed
marketing organization under its own brand name

What is the proposed after-sales service? This is particularly relevant in the consumer
durables industry.
In the case of seasonal items, what would be done during off-season?
How are the goods going to be transported?

In case the FG is bulky, then the

transportation factor assumes greater importance.

4. Capital Cost & Sources of Finance?
There are two types of Capital Costs
One time costs e.g. costs incurred on vehicles, land & building, furniture, jigs, plant &
machinery, preliminary expenses, contingency expenses, etc. each cost item must be
mentioned separately.
Working Capital costs: This includes costs incurred in RM, WIP & FG inventory and
accounts receivables.
5. Assessment of Working Capital Requirements:
Planning for WC is very crucial. Most units fall sick because of inadequate assessment of
WC requirements. The components of WC costs have already been mentioned in order to
assess the WC component for Acc. Rec., the average credit period needs to be calculated
on the basis of the industry average.
When Working capital requirement is assessed. It is generally observed that entrepreneurs
assess the WC requirements in their own way. This often becomes a problem because
banks have their own assessment techniques. Banks have 3 different forms and recast
Working capital requirements according to their forms. The forms are:
Form for WC requirement less than Rs.25000.
Form for WC requirement between Rs. 25000 & Rs. 2,00,000.
Form for WC requirement greater than Rs. 2,00,000
Hence, it is good idea to calculate WC requirements according to the banks format.
A question may arise as to what must be done in case one experiences WC shortage or
RM shortage for 2 yrs. After operations have begun? In such cases, banks do provide help
but it is not easy to convince them. Hence it is most essential to anticipate such shortages
and plan your WC requirements well.
6.Other Financial Aspects:

The following are the other financial aspects that must be included in the project report
Prepare the projected B/S.
Prepare the projected P&L account
Prepare the projected cash flow statement.
Calculate the break Even point of the unit BE Point F*100/(S V), where
F= Fixed Cost, S = Sales at Full Capacity, V=Variable cost
Calculate the following ratios
Profitability Ratio:

Net Profit * 100 / Sales

ROI:

Net Profit * 100 / Capital Employed

D/E ratio:

Debt/Equity

DSCR:

(NPAT + D+I) / (Installments+I)

Where,

DSCR=Debt

Service

Coverage

Ratio;

NPAT=Net

Profit After

Tax;

D=Depreciation; I=Interest .
The DSCR indicates to the banker of the financial institution about the capacity of the
unit to repay its loan installments and interest. The DSCR must work out to 2.1 or more.
For presenting the above -mentioned information, the help of an expert may be required.
7. Economic & Social Variables:
Here, the entrepreneur must perform a Cost-Benefit analysis with respect to its impact on
the rational economy and on society.
As a portion of Costs, the entrepreneur must include Abatement Costs or costs incurred to
control environmental damage. It is the value of additional engineering and technology
required for treating effluents, reducing noise pollution, etc.
The following social and economic benefits could be mentioned
Promoting Employment: The number of persons the unit proposes to employ vis--vis the
current employment situation in the area.
Import substitution: How much foreign exchange the unit will save. What is the proposed
indigenisation program?
Ancillarisation: if any work would be sub-contracted. What will be the level of
ancillarisation and the additional employment thus generated? How will the unit help in
the overall development of the area?

Finally, it would still be wise to include of the plant layout. Because ultimately, the
project must serve as a blueprint for the entrepreneur and a plant layout would be very
useful to him.
The project implementation schedule must also be mentioned. For large units, this would
entail preparation of PERT & CPM charts.
For SSIs however, it would suffice to include a simple project implementation schedule.
List out various activities and the time required for carrying out each activity, when the
activity would commence and when it would terminate. Without the project
implementation schedule, projects tend to get delayed. As a result, of this projects costs
shoot up. This may prevent banks from sanctioning further funds
The various activities could include the following:
Acquiring Land
Registration
Obtaining bank loans
Construction of building
Ordering plant and machinery
Supply and installation of plant and machinery
Recruitment of personnel
Training of personnel
Trial production
Commercial production