ENTREPRENEURIAL

DEVELOPMENT

GUIDED BY: PRESENTED BY:

MONSI K. 7th SEMESTER CIVIL B
MANI 2018-2022 BATCH
SCHOOL OF ENGINEERING CUSAT
 CONTENTS
SL.NO TOPICS PREPARED BY PAGE NO

1 TYPES OF ENTREPRENURS AND FACTORS AFFECTING

ENTREPRENEURIAL GROWTH 1. MUHAMMED ANSER P
2. NAFIH SHEMEER K M 1-28
3. NAINIK ARYA
4. NAJIH SULTAN ABDUL KHADER
5. NANDANA RAJAN
6. NANDANA SANKAR
2 MAJOR MOTIVES INFLUENCING AN ENTREPRENUR
1. NASHID N
2. NIRMAL RAJ K
29-44
3. NUHA FATHIMA
4. PAVITHRA CASSEA PANAKKAL
5. RAHUL KRISHNAN
6. RAVEENA RAVEENDRAN
3 IDENTIFYING A N D S E L E C T I N G A GOOD
BUSINESSOPPORTUNITY 1. RAVI SHANKAR KUMAR
2. RIZWAN SHARAF C P
45-56
3. S. GANESH
4. SANATH K R
5. SANGEETH P V
6. SANJEEV KUMAR
4 PREPARATION OF A TECHNO ECONOMIC FEASIBILITY
REPORT FOR A GIVEN PROJECT 1. SAYED ARSHAD KHAN P
2. SETHULAKSHMI R
57-71
3. SHAFAD MOIDEEN P T
4. SHAMIL P K
5. SHIFIL M KOYA
6. SIMPSON THOMAS P S
5 PREPARATION OF PRELIMINARY PROJECT REPORT FOR A
GIVEN PROJECT 1. SONAM DOLMA
2. SONIA Y S
72-87
3. SOURAV KUMAR
4. SOURAV SINHA MAHAPATRA
5. SREEKUMAR K R
6. SREELAKSHMY MR
6 VARIOUS SOURCES OF FINANCE AND MANAGEMENT OF
WORKING 1. SREERAG PRAKASHAN
2. SREERAJ T S
88-108
3. SRILAKSHMI THANKAPPAN
4. SUBHASH KUMAR
5. SUNEESH SAINTHAVAN
CARRYING OUT THE COSTING AND BREAK-EVEN ANALYSIS
7 OF A PROPOSED PROJECT 1. SURAJ SINHA
2. THAMJEED AHMED
109-129
3. TSERING ANGMO
4. TSEWANG DOLKAR
5. VIKAS KUMAR RANA
8 PREPARATION O F P E R T /CPM CHART F O R
V A R I O U S ACTIVITIES INVOLVED IN A PROJECT 1. VISHNU G
2. VIVEK V SARMA
130-148
3. NAZRIN MARIYAM N B
4. ADIL AMEEN U K
5. AFZAL M BAKSHI
9 VARIOUS STRESS MANAGEMENT TECHNIQUES
1. AMALU JOGY GEORGE
2. BINISHA B
149-165
3. KRISHNAPRIYA P K
4. MEENU K V
5. MEKHA SANTHAKUMAR
6. MIRSHA S
10 VARIOUS CAUSES AND CONSEQUENCES OF SICKNESS IN
SMALL BUSINESS AND CORRECTIVE MEASURES 1. SHAKIR NAZEER
2. VISHNU RAMESH 166-180
3. SRAVAN DEV
4. MOHAMMED SALEEM A
5. HIJAS MOHAMED PUTHEN PEEDIAKAL
6. ANCY P J
 ACKNOWLEDGEMENT

The subject of Entrepreneurship Development aims to provide an understanding of the

various aspects of entrepreneurship including scope, key areas of development,
financial assistance by the institutions, preparation of project reports etc. This report is
the compilation of multiple reports provided by students studying in 7th Semester of
Civil Engineering (B Batch), 2021-22.
We would like to first thank our guide, Mr. Monsi K Mani, for supporting us
throughout the semester, and giving us his valuable time and advice to help us prepare
this report.
We are also grateful to our college, School of Engineering, Cochin University of
Science and Technology, for introducing this subject in the curriculum, to help us
tackle the race in the modern-day start-up culture.

EDITORIAL TEAM

GUIDED BY:
Monsi K Mani

EDITORS:
Simpson Thomas P S
Pavithra Cassea Panakkal
Nafih Shemeer K M
Shafad Moideen P T

COVER PAGE DESIGN:

Simpson Thomas P S
CHAPTER 1: INTRODUCTION AND DEFINITIONS
OF ENTREPRENEURSHIP, TYPES OF
ENTREPRENEURS AND FACTORS AFFECTING
ENTREPRENEURIAL GROWTH

1. INTRODUCTION:

Entrepreneurship refers to the process of creating a new enterprise and

bearing any of its risks, with the view of making a profit. It generates
industrial growth, regional growth, and employment generation. Thus,
entrepreneurship is a key to socio-economic transformation of a region.
An entrepreneur is an individual who brings together people, resources,
labour, materials, and other assets into combination to create a positive
change in society. To one businessman, an entrepreneur appears as a
threat, whereas to another businessman the same entrepreneur may be
an ally, a source of supply, a customer or someone who creates wealth
for others, as well as find better ways to utilize resources, reduce
waste, and produce jobs others are glad to get. Entrepreneurs have
historically altered the direction of national economies, industries or
markets. They have been responsible for improving the overall
technological growth and productivity of humanity.
Entrepreneurs are self-driven individuals willing to take calculated
risks. Entrepreneurs have the courage to go bankrupt if they fail in their
venture. But in majority of the cases they start with nothing but
entrepreneurial ability and end with positive results.
Factors that affect entrepreneurial growth are both internal and
external, starting with mindset and personality, and circling outward to

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social and economic factors that provide a landscape where a small
business can thrive.

1.1 Origin and Related Terms: -

The word ‘entrepreneur’ is derived from the French verb
‘enterprendre’, which means 'to undertake’. The term
‘undertake’ here refers to the risks borne by the entrepreneur to
realize his goals.
Some of the terms related to the term “entrepreneurship” are as
follows:
1.1.1. Entrepreneur: An entrepreneur is an individual who has
an innovative idea and works to transform it into reality
alongside enduring the risks involved
1.1.2. Enterprise: It refers to the business entity, i.e., the unit
that involves risk and uncertainty
1.1.3. Intrapreneur: It refers to an employee of the
organization responsible for bringing innovations in the
products and services of the organization
1.1.4. Manager: It refers to the individual who is responsible
for the management and administration of the
organization.
1.2 Some definitions: -
• “An individual who bears the risk of operating a business in
the face of uncertainty about the future conditions.” -
Encyclopedia Britannica
• “He shifts economic resources out of an area of lower and
into an area of higher productivity and greater yield.” - J. B.
Say (French economist)
• “Entrepreneurship is neither a science nor an art. It is a
practice and has knowledge base. It is not just about making
money. It is about imagination, flexibility, creativity,
willingness to think conceptually, readiness to take risks,
ability to mobilize agents of production and capacity to see
change as an opportunity. It is also about marrying passion
and process with a good dose of perseverance.”- Peter F.
Drucker
• “Entrepreneurs are people who have the ability to see and
evaluate business opportunities; together with the necessary

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 resources to take advantage of them; and to intimate
appropriate action to ensure success.” -International
Labour Organization (ILO)
• “He is a critical factor in economic development and an
integral part of economic transformation.” -William
Diamond.
• “Entrepreneurship is the process of creating value by
bringing together a unique package of resources to exploit an
opportunity.” - Stevenson
• “Entrepreneur is an individual who brings together the
capital and labour required for the work, who adventures or
undertake risks, who arrange or engineers its general plan.” -
Alfred Marshall
• “He is a person who is able to look at the environment,
identify opportunities to improve the environment. marshal
resources, and implement action to maximize those
opportunities.” -Robert E. Nelson.

1.3 Additional Definitions: -

• “He is the agent who buys means of production at a certain price
in order to combine them into a product that is going to seller at
prices that are certain at the moment at which he commits
himself to his costs.” – Cantillion
• "His primarily concerned with changes in the formula of
production over which he has full control. He devotes
correspondingly little time to the carrying out of a specific
formula”. - IN Danhof
• “He is the one who is endowed with more than average
capacities in the task of organizing and coordinating the various
factors of production. He is a pioneer and captain of industry.” -
Francis A. Walker
• “Entrepreneur is an innovator who brings economic
development through new combinations of factors of
production.”- Joseph A. Schumpeter
• “Entrepreneurship is the function of seeking investment and
production opportunities, organizing an enterprise to undertake a
new production process, raising capital, hiring labour, arranging
the supply of raw materials, finding site, introducing a new

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 technique, discovering new sources of raw materials and
selecting top managers for day-to-day operations of the
enterprise.”- B. Higgins
• “Entrepreneur is a person or group of persons responsible for the
existence of a new industrial enterprise.”- James Burna
• “An engineer-entrepreneur is the individual who visualizes the
place in the economy that the product he to develop can occupy;
decides what technical features this product should have to
ensure its commercial success; and then invents a product which
possesses these technical features” – Harold C. Passer

1.4 Historical Background: -

Marco Polo
Marco Polo is considered as one of the first entrepreneurs in human history.
During the 17th century, an entrepreneur was the individual who entered
into a contract with the Government for the supply of agreed services or
goods under fixed terms and prices. John Law of France was one of the
famous entrepreneurs of his time who founded The Royal Bank of France
Since the 18th century, with rapid industrialization, an entrepreneur refers
to someone who seeks capital to fund his/her innovative pursuits. Some
famous modern entrepreneurs include JP Morgan, Bill Gates, Jeff Bezos,
Mark Zuckerberg, Shiv Nadar, Azim Premji etc.

1.5 Characteristics of a Successful Entrepreneur: -

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 A successful entrepreneur possesses the following qualities
● Curiosity: Successful entrepreneurs have a sense of curiosity that
allows them to continuously seek new opportunities. Therefore, rather
than settling for what they think they know, curious entrepreneurs ask
challenging questions and explore different areas.
● Structured Experimentation: With each new opportunity, an
entrepreneur must run tests to determine if it’s worthwhile to pursue.
For example, if you have an idea for a new product or service that
fulfills an underserved demand, you’ll have to ensure customers are
willing to pay for it. To do so, you’ll need to conduct thorough market
research and run meaningful tests to validate your idea and determine
whether it has potential
● Adaptability: The nature of business is ever-changing. new challenges
and opportunities present themselves at every turn. It’s nearly
impossible to be prepared for every scenario. Entrepreneurs need to
evaluate situations and adapt so their business can keep moving
forward when unexpected changes occur.
● Decisiveness: The ability to make decisions quickly and effectively is
known as decisiveness. To be successful, an entrepreneur has to make
difficult decisions and stand by them. Being decisive doesn’t always
mean having all the answers. If you want to be an entrepreneur, it
means having the confidence to make challenging decisions and see
them through. Even If the outcome turns out to be not that successful,
the decision to take corrective action is just as important.
● Team Building: A great entrepreneur is aware of their strengths and
weaknesses. Rather than letting their weaknesses hold them back, they
build well-rounded teams who have complementary talents and
contribute to a common goal. In many cases, it’s the entrepreneurial
team, rather than an individual, that drives a venture toward success.
● Risk Tolerance: Entrepreneurship is often associated with risk.
Successful entrepreneurs are comfortable with encountering some level
of risk to gain the rewards of their efforts; however, their risk tolerance
is highly related to their efforts to minimize it.
● Comfortable with Failure: Entrepreneurship requires a certain level

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 of comfort with failure. It’s estimated that nearly 75 percent of new
startups fail. While many of the risks can be avoided, some are
inevitable. Successful entrepreneurs prepare themselves for, and are
comfortable with, failure. Rather than let fear hold them back, the
possibility of success moves them forward.
● Persistence: While many successful entrepreneurs are comfortable
with the possibility of failing, it doesn’t mean they give up easily.
Rather, they see failures as opportunities to learn and grow from it.
What makes an entrepreneur successful is their willingness to learn
from mistakes, continue to ask questions, and persist until they reach
their goal.
● Innovation: Innovation goes hand-in-hand with entrepreneurship.
Some of the most successful startups have taken existing products or
services and drastically improved them to meet the current market
requirements. By developing your strategic thinking skills, you can be
well-equipped to spot innovative opportunities and position your
venture for success.
● Long-Term Focus: Most people think of entrepreneurship as the
process of starting a business. While the early stages of launching a
venture are critical to its success, the process doesn’t end once the
business is operational. There’s a saying, “It’s easy to start a business,
but hard to grow a sustainable and successful one”. Entrepreneurship is
a long-term endeavor, and entrepreneurs must focus on the process
from beginning to end to be successful in the long run.

2. TYPES OF ENTREPRENEURS:
The following are the ways by which entrepreneurs are classified:

2.1 According to Organization: -

2.1.1. Private entrepreneurship: Companies are owned and controlled by a
private group of individuals or even a single entity run independently of
the government. Private entrepreneurship is the lightest and simplest
company form. It is also easy, fast and inexpensive to set up. An
example of private enterprise is Raymond Ltd, Trident Ltd, etc.

2.1.2. Public entrepreneurship: Here the companies will be owned entirely

or partially by the government of a country. It is a process of
introducing innovation, generation and implementation of new ideas, in
the public sector. Examples are Hindustan Machine Tools Ltd, Bharat
Petroleum Corporation Limited.

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 2.1.3. Commercial entrepreneurs: They focus mainly on profits and
standardizations and not on the resources or society issues. Their main
priority is the creation of economic value. Examples: Any organization
that works for profit like Tiktok, Facebook, Snapchat and not for society
issues.

2.1.4. Social entrepreneurship: They are people in business who target the
development of products and services, so that social requirements and
problems can be solved. Their main motive of entrepreneurs in this case
is improving the world. A good example of social entrepreneurship is
microfinance institutions like ESAF Microfinance and Investments (P)
Ltd

2.2 According to the Type of Business: -

2.2.1. Corporate entrepreneurs: A corporate entrepreneur is a person who
demonstrates his innovative skill in organizing and managing corporate
undertakings. That is in simple words a corporate entrepreneur is an
individual who plans, develops and manages a corporate body.
Examples are Tata Consultancy Services, Reliance Industries Limited
etc.

2.2.2. Trading entrepreneurs: All the activities related to the trading of an

organization are done through such types of entrepreneurs. It serves as
middlemen for dealers, wholesalers, manufacturers and the customers.
A good example is SITCO India.

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 2.2.3. Industrial entrepreneurs: They are essentially manufacturers, who
identify the potential needs of customers and make a product or service
to meet the marketing needs. Examples are Hindustan Unilever, Cipla
etc.

2.2.4. Agricultural entrepreneurs: Agricultural entrepreneurs are those

entrepreneurs who undertake agricultural activities as raising and
marketing of crops, fertilizers and other inputs of agriculture. They are
motivated to raise agriculture through mechanization, irrigation and
application of technologies. One such example of agricultural enterprise
is UPL Ltd.

2.2.5. Business entrepreneurs: Business entrepreneurs are individuals who

conceive an idea for a new product or service and-then creates a
business to materialize their idea into reality. They may set up a big
establishment or even a small business unit. A good example is Tally
solutions.

2.3 According to the Type of Business: -

2.3.1. Technical Entrepreneur: A technical entrepreneur is essentially
compared to a “craftsman.” He develops improved quality of goods
because of his craftsmanship. He concentrates more on production than
marketing. The greatest strength, which the technical entrepreneur has,

8
 is his skill in production techniques. Elon Musk, founder of SpaceX, is a
famous modern-day example of a technical entrepreneur.

Elon Musk

2.3.2. Non-Technical Entrepreneur: Non-technical entrepreneurs are those

who are not concerned with the technical aspects of the product in
which they deal. They are concerned only with developing alternative
marketing and distribution strategies to promote their business. Few
examples are Netflix (Reed Hastings), and Amazon (Jeff Bezos).

2.3.3. Professional Entrepreneur: Professional entrepreneur is a person who

is interested in establishing a business, but does not have interest in
managing or operating it once it is established. A professional
entrepreneur sells out the running business and starts another venture
with the sales proceeds. Such an entrepreneur is dynamic and he
conceives new ideas to develop alternative projects. Example of a
professional entrepreneur is K Radhakrishnan. His previous role was the
head of KB’s Fairprice and CEO Reliance Fresh. Currently he is the co-
founder of GrocerMax.

K Radhakrishnan

2.3.4. IT Entrepreneurs: IT Entrepreneur is a news aggregator targeting

entrepreneurs in the IT industry. Example of an IT entrepreneur is
ľony

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 Chen, the Co-Foundeí & CEO at BuzzBlaze.

Tony Chen
2.3.5. E-Entrepreneurs: E-Entrepreneurship refers to establishing a new
company with an innovative business idea within the Net Economy. A
few examples would be websites such as Shopify, eBay, etc.

2.4 According to the Entrepreneur and Motivation: -

2.4.1. Pure Entrepreneur: Individual who is motivated by psychological
and economical reward. He undertakes entrepreneurial activity for his
personal satisfaction in work, ego or status. Dhirubai Ambani, Jamshedji
Tata, T.V. Sundaram Iyengar, Birla, Narayana Murthy, and Azim Premji
are few examples of pure entrepreneurship.

Narayana Murthy

2.4.2. Induced Entrepreneur: This entrepreneur is one who is induced

to take up an entrepreneurial task due to the policy measures of the
government that provides-assistance, incentives, concessions and
necessary overhead facilities to start a venture. Most of the
entrepreneurs belong to this category and enter business due to financial,
technical and several other facilities provided to them by the state
agencies to promote entrepreneurship. A good example would be Sachin

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 Bansal, the co-founder of Flipkart. Bansal graduated from IIT Delhi in
2005 and joined a company called Techspan for a few months. In 2006,
he joined Amazon.com India as senior software engineer. Binny Bansal
also worked at Amazon India at this point. They initially thought of
starting a comparison search engine, but realized that the market for E-
commerce in India was very small. Hence after leaving Amazon in
2007, they founded Flipkart as an e-commerce company.

Binny Bansal and Sachin Bansal

2.4.3. Motivated Entrepreneur: He comes into being because of the

possibility of making and marketing some new products for the use of
consumers. If the product is developed to a saleable stage, the
entrepreneur is further rewarded in terms of profit. One such example is
P C Mustafa – an entrepreneur who failed in class 6 built a ₹100 crore
company “iD Fresh Food”.

P C Mustafa

2.4.4. Spontaneous Entrepreneur: They start their business out of their

natural talents. They are persons with initiative, boldness and confidence
in their ability which motivate them to undertake entrepreneurial
activity. They have strong conviction and confidence in their ability. A
good example would be Sabyasachi Mukherjee who is an Indian fashion
designer, jewelry designer, retailer and couturier from Kolkata, India.

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 Sabyasachi Mukherjee

2.5 According to the Growth of Entrepreneurs: -

2.5.1. Growth Entrepreneur: Someone who is interested in growing a
company quickly. Sometimes growth entrepreneurs are referred to as
gazelles as they are distinguished by their ability to double the size of
their company either by number of employees or in gross profit every
two to four years. Ritesh Agarwal is the founder of OYO rooms. He felt
that the majority of the hotels in India couldn’t satisfy the basic needs of
a traveler on budget. Thus, he started Oravel Stays, his first venture in
2012.He was one of the winners of the 2013 Thiel Fellowship program,
receiving a grant of $100,000. He improved his business model in 2013
and re-launched Oravel as ‘OYO’ which is short for ‘ON YOUR
OWN’.

Ritesh Agarwal
2.5.2. Super-Growth Entrepreneur: Super growth entrepreneurs are those
who have shown enormous growth of performance in their venture. The
growth performance is identified by the liquidity of funds, profitability
and gearing. Example: Ola.

2.5.3. Aspiring entrepreneurs: The person who focuses on the hope and
dream of entrepreneurship and to be their own bosses, but they have not
yet made the leap from their current employment into the uncertainty of
a start-up.
2.5.4. Lifestyle entrepreneurs: A lifestyle entrepreneur is a person who
creates a business with the purpose of altering their personal lifestyle. A

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 lifestyle entrepreneur focuses more on the life rewards rather than the
monetary rewards. It provided to those that have a true passion for their
work and enjoy what they're doing. Example: Kylie Kristen Jenner
(born August 10, 1997) is an American media personality, socialite,
model, and businesswoman.

Kylie Jenner

2.6 According to Entrepreneurial Activity: -

2.6.1. Novice: A novice is someone who has started his/her first
entrepreneurial venture. An example of a novice entrepreneur is
Sreelakshmi Suresh. She is the Founder of eDesign, TinyLogo.
Sreelakshmi is often regarded as the Youngest CEO and Youngest Web
Designer in the world. She also has received many awards as
recognition for her talent. Her companies provide services in web
design, SEO, and other fields to many popular brands.

Sreelakshmi Suresh
2.6.2. Serial Entrepreneur: A serial entrepreneur is someone who is devoted
to one venture at a time but ultimately starts many. He repeatedly starts
businesses and grows them to a sustainable size and then sells them off
Richard Branson is the founder of Virgin Group, which today controls
more than 400 companies in various fields. He is a serial entrepreneur,
investor, and author.

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 Richard Branson

2.6.3. Portfolio Entrepreneur: A portfolio entrepreneur starts and runs a

number of businesses at the same time. It may be a strategy of spreading
risk or it may be that the entrepreneur is simultaneously excited by a
variety of opportunities.

2.7 According to Functional Characteristics: -

2.7.1. Innovative Entrepreneur: person who brings new technology, process
or knowledge into life. He dedicates his efforts into making "new
things" which he thinks may be of a great use to society. An Innovative
Entrepreneur is a person who creates things of value and thus is
responsible for creating wealth for himself and others. Example:
Michael Saul Dell (born February 23, 1965) is an American billionaire
businessman and philanthropist. He is the founder, chairman and CEO
of Dell Technologies, one of the world's largest technology
infrastructure companies

Michael Dell

2.7.2. Fabian Entrepreneur: Entrepreneurs have neither the will to introduce

new changes nor desire to adopt new methods innovated by the most
enterprising entrepreneurs. Such entrepreneurs are shy and lazy. And
the individuals who do not show initiative in visualizing and
implementing new ideas and innovations. Example: Kodak, a company
that happened to be the market leaders in producing analog cameras but
they did not realize the change and the introduction of the Digicam.

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2.7.3. Imitative Or Adoptive Entrepreneurs: They have the readiness to
adopt successful innovation inaugurated by innovating entrepreneurs.
They are revolutionary entrepreneurs with the difference that they do
not innovate the change themselves. They just imitate techniques and
technology innovated by others. Such entrepreneurs are important in
developing countries for the development of a country's economy.
Example: Walton BD. has introduced its motorbikes, refrigerators,
televisions and other electronic appliances in Bangladesh not being the
original inventor of those products.

2.7.4. Drone Entrepreneurs: These entrepreneurs are reluctant to change

since they are very conservative and do not want to make any changes
in the organization. They are happy with their present mode of business
and do not want to change even if they are suffering the losses.
Example: Citycell Telecom Bangladesh, in spite of having knowledge
about their market fall they have not yet changed their business policy.

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2.8 According to Stages of Development: -
2.8.1. First-generation Entrepreneurs: They are from non-entrepreneurial
backgrounds who establish their enterprise by embracing innovative
ideas. The entrepreneur is the first in the family to establish an
enterprise on his/her own. Those with a business background but
establishing a completely unrelated business also come under this
category. Example: Dhirubhai Ambani, Ghanshyam Das Birla, Ardeshir
Godrej.

Dhirubhai Ambani

2.8.2. Second Generation Entrepreneur: They are the ones who inherit
family business. However, in order to stay competitive, they adapt and
improvise to the changing market needs. Example: Mukesh Ambani. He
inherited part of his family business.

Mukesh Ambani

2.8.3. Classical Entrepreneurs: They give importance to business survival

rather than growth. They are called stereotype entrepreneurs as they
seek consistent returns with or without growth. Some classic
entrepreneurs are micropreneurs who start small and plan to stay small.
Miho Inagi is a good example of a micropreneur. Her passion for bagels
led the young office assistant to quit her job and pursue her dream of
one day opening her own bagel shop in Tokyo. Today Maruichi Bagel is
one of the successful bakeries in Tokyo.

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 Miho Inagi

2.8.4. Inherited Entrepreneurs: They also inherit family business alongside

experience to run the family business. Unlike second generation
entrepreneurs, they do not prefer much diversification or new approach
to their family business. Example: Anil Ambani.

Anil Ambani
2.9 According to Capital Ownership: -
2.9.1. Private entrepreneur: It is an entrepreneurial venture established by an
individual or a group of individuals with the intent of making profits.
The responsibilities of arranging finance and bearing the risks reside
with the members. Example: Disney. The Walt Disney Company,
commonly known as Disney, was originally founded on October 16,
1923, by brothers Walt and Roy Oliver Disney. Today it is one of the
biggest corporations in the world.

2.9.2. State Entrepreneur: Entrepreneurial venture handled by the state or

government itself. Example: BSNL.

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2.9.3. Joint entrepreneur: Entrepreneurial venture managed by both private
and state entities. Example: Mumbai Metro which is jointly owned by
DMRC and Reliance Ltd.

2.10 According to Scale of Enterprise: -

2.10.1.Small Scale Entrepreneurs: They are in the entry level with
limited funding and offer one or two products or services. This
classification is especially popular in underdeveloped countries.
They don’t have necessary talents, resources and funds to
initiate large scale production and introduce revolutionary
technological changes. Total turnover will be less than Rupees
1 crore. Example: Paper Plant.

Small Scale Paper Plant

2.10.2.Medium Scale Entrepreneurs: They are around for some time

with a market presence. They have somewhat defined offerings.
Example: Medium Scale Restaurant.

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 Medium Scale Restaurant

2.10.3.Large Scale Entrepreneurs: They have steady flow of funds

and have diversified product lines and service offerings. They
are well established and look for a high market share. In
developed countries most entrepreneurs deal with large scale
enterprises. They possess the financial and necessary enterprise
to initiate and introduce new technical changes. The total
turnover of this type of enterprise is more than Rupees 1 crore.
The result is, the developed countries are able to sustain and
develop a high level of technical progress. Example: Johnson
and Johnson.

2.11 According to Entrepreneurial Business: -

2.11.1.Manufacturing: An entrepreneur who runs such a business actually
produces products that can be sold using resources and supplies. For
example, apparel and other textile products, chemical and related
products, electronics and other electrical equipment, fabricated metal
products, industrial and other electrical equipment, fabricated metal
products, industrial machinery and equipment, printing and publishing,
rubber and miscellaneous products, stone, clay etc. Example: Mysore
Deep Perfumery.

Mysore Deep Perfumery

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2.11.2.Wholesaling: An entrepreneur with such a business sells products to a
middle man. Example: Sayed Home Industries Private Limited.
Example: Luxmi Group. During 1917 tea estates in India were
predominantly British-owned. Seeing such a miserable condition of the
country, where one had to plead for their own rights, P C Chatterjee,
who was part of the satyagraha movement decided to expand and
diversify Luxmi Tea as a part of the all-India movement for self-
reliance.

2.11.3.Retailer: An entrepreneur who sells products directly to the people who

use or consume it. Example: Ralph Lauren. Founded in 1967, the
American clothing retailer Ralph Lauren Corporation now ranks 7th on
BizVibe’s list of the biggest clothing brands in the world.

2.11.4.Service: An entrepreneur in this business sells service rather than

products. Example: Agarwal Packers and Movers is one of the largest
Logistics companies in India, evolved from a small-scale business of
Agarwal Household Carrier established in 1987 and functioned
particularly for the shifting of household goods.

2.12 Miscellaneous Types: -

2.12.1.Health Entrepreneurship: Entrepreneurs working in the health and
biomedical domain put their innovative ideas in digital medical
services. Shamsheer Vayalil Parambath is an Indian radiologist and
health entrepreneur. He is the founder, chairman and managing director
of VPS Healthcare Group, and the vice chairman and managing
director of Amanat Holdings, a healthcare and education investment
company.

20
 Shamsheer Vayalil Parambath

2.12.2.Women Entrepreneurship: They are those enterprises where women

think, initiate, organize, operate and combine production units. The
Government of India has defined a women entrepreneurship as “an
enterprise owned and controlled by a woman having a minimum
financial interest of 51% of the capital and giving at least 51% of the
employment generated in the enterprise to women”.
Kiran Mazumdar-Shaw is a first-generation entrepreneur and global
business leader with over 4 decades of experience in biotechnology.
She is the executive chairperson and founder of Biocon Limited and
Biocon Biologics Limited, a biotechnology company based in
Bangalore, India. She was India's richest self-made woman, founded
India's largest listed biopharmaceutical firm by revenue, in 1978.

Kiran Mazumdar-Shaw
2.12.3.Social Entrepreneurship: It is a practice of addressing social or
environmental issues through innovative business methods. Bill
Drayton is the founder and current chair of Ashoka: Innovators for the
Public, an organization dedicated to finding and fostering social
entrepreneurs worldwide. He also chairs two other organizations,
namely Youth Venture and Get America Working. He is responsible
for the rise of the phrase "social entrepreneur”, a concept first found in
print in 1972.

21
 Bill Drayton

2.12.4.Educational Entrepreneurship: The entrepreneur identifies an issue

in the education domain and develops solutions to address the same.
Byju Raveendran is the founder of edutech start-up Byju's. In 2011, he
founded Byju's coaching class and in 2015 he launched Byju's app. He
started BYJU's with an initial investment of just INR 2 lakhs. The
startup's valuation has recently crossed $11 billion!

Byju Raveendran
2.12.5.Rural Entrepreneurship: They address the problem of
unemployment, poverty, illiteracy and contribute to rural development.
Mansukhbhai Patel, born in a family of farmers in a small village,
always had a penchant for mechanical and electrical appliances. After
finishing his high school studies, he initially started working as a helper
in a steel tube manufacturing company at Ahmedabad only to become
the radical change in the field of farming by inventing “Chetak”, the
cotton stripping machine. This has significantly changed the way
farmers carry out their agricultural activities by processing bulks of
cotton simultaneously saving tremendous amounts of time and cost.
Eventually, this led to Patel diversifying his business and inventing
cotton baling machines, automatic ginning machine, and conveyor belt.

22
 Mansukhbhai Patel

2.12.6.Digital Entrepreneurship: It focuses on changing the dynamics of

entrepreneurship through digital technology. Deepinder Goyal and
Pankaj Chaddah, founders of Zomato, a food delivery venture. Zomato
started out as ‘Foodiebay’ and was first launched in Delhi in 2008. It
was later renamed as Zomato in 2010 and their service was expanded
all over India. On 21 January 2020, Zomato acquired its rival Uber
Eats' business in India in an all-stock deal.

Deepinder Goyal and Pankaj Chaddah

3. FACTORS AFFECTING ENTREPRENEURSHIP:

The following are the factors affecting entrepreneurship:

3.1 Economic Factors: -

3.1.1. Capital: -
• Capital is one of the most important prerequisites to establish an
enterprise.

23
 • Availability of capital facilities for the entrepreneurs to bring together
land of the machine of another to combine them to produce goods.
• Capital is therefore regarded as lubricant to the process of production.
3.1.2. Labour: -
• The quantity rather than quantity of labour is another factor which
influences the emergence of entrepreneurship.
• The availability of cheap labour positivity affect entrepreneurship
• But entrepreneurship is increased if there is a mobile and flexible labor
force.
3.1.3. Raw Material: -
• Entrepreneurship is encouraged only if there is an adequate supply of
material and knowledge.
• Quality of products depends on the quality of Raw material used
• Easy availability of materials attracts more individuals towards
entrepreneurship.
• To a modern enterprise requires technical know how far innovation
3.1.4. Market: -
• The fact remains that the potential of the market constitutes the major
determinant of probable rewards from entrepreneurial function.
• The size and composition of the market both influence
entrepreneurship in their own ways.
3.1.5. Infrastructure: -
• Entrepreneurship development requires certain basic infrastructure like
power, transportation, communication and technical information.
• Land and factory sheds at affordable rates, adequate supply of power,
water, coal and other sources of energy, transport facilities and other
facilities should be provided.
3.2 Psychological Factors: -

24
3.2.1. Need of Achievement: -
• Need for achievement is the desire to obtain excellent results by setting
high standards and striving to accomplish them. It is a consistent
concern with doing things better.
• If the average level of needed achievement in a society is relatively
high, one would expect a relatively high amount of entrepreneur
development in the society.
• There is also some mechanical motivation trading program.
3.2.2. Withdrawal of Status Respect: -
• When members of a given social group perceive that they are not
respected by the dominant group of society, this triggers a personality
change that encourages entrepreneurial behaviour.
• Everett Hagen attributed the withdrawal of status respect of a group to
the genesis of entrepreneurship.
3.2.3. Motives: -
• Other psychological theories of entrepreneurship stress the motives or
goals of the entrepreneurs. Besides wealth, entrepreneurs seek power,
prestige, security and service to society.
• Non-monetary aspects such as independence, self-esteem, power etc.
also triggers entrepreneurship.
3.2.4. Willingness to take risks: -
Researchers have come to the conclusion that entrepreneurs who take
moderate risk earn higher returns on their assets than those who take no
risks.
3.3 Social Factors: -

25
3.3.1. Religion and Caste Factor: -
Certain caste systems encourage entrepreneurship. Religious
communities like Parsees, Marwaris, Siddhas etc. seem to have an
affinity for entrepreneurial activities.
3.3.2. Social Status: -
Every human being aspires for a high social status and once he achieves
a reasonable level, his aspirations and desires for its start multiplied,
people work hard to maintain their status as it also contributes to their
entrepreneurial growth.
3.3.3. Education: -
• Education is the best means of developing from knowledge learning to
skill improvement, entrepreneurship education, general ability
development and improvement of professional ability.
• Education provides entrepreneurs with cognitive skills to better
evaluate and exploit entrepreneurial opportunities, increases the level of
self-confidence and reduces perceived risk.
• Education provides the individual to identify problems and find
solutions that create value. It may be expected that a high level of
education may enable the entrepreneurs to exercise their entrepreneurial
talent more effectively and efficiently.
3.3.4. Attitude of Society: -
• Certain societies encourage innovations and novelties and thus
approveentrepreneurs’ actions and rewards like profits.
3.3.5. Occupation: -
• Those born in a business or entrepreneur-oriented family
have the advantage of learning the business by interaction and
contacts with parents, employees, and visitors in family shops,
offices and homes.
3.3.6. Social Responsibility: -
• The entrepreneur is an important part of the social system. The
interdependence of society and business is increasing, with rising
standards of living in society. It can improve the financial stability of the
entire society.

3.4 Government Actions: -

The socio-political and economic policies of the government inhibit or
foster entrepreneurial growth. Land and factory sheds at concessional rates,
adequate source of power, supply of material and other physical facilities
should be provided by the government to facilitate the setting up of new
enterprises. The government has a dominant role to play in the industrial
development of backward regions with a view to obtain a balanced regional
26
 development.

By Micro Small Medium Enterprises Development (MSMED) Act

government provides
● Bank loans
● Subsidy on patent registration
● Industrial promotion subsidy eligibility
● Protection against delayed payment
The MSMED Act also makes recommendations for facilitating promotion
and development, as well as for enhancing the competitiveness of micro
small and medium enterprises.
The Government also provides incentives like:
● Marketing assistance
● Promotional schemes
● Concession on excise duty
● Credit facility to MSME
● Government incentives, subsidies and grants.

4. CONCLUSION:
From the above discussion, it can be seen that there is much more to
entrepreneurship than merely starting a business. Entrepreneurship can come
in many forms, with each having its own rhyme and reason. Entrepreneur is
developed by several factors, both internal and external, and the final outcome
varies across several of these factors.
However, we must understand that entrepreneurs are driven individuals who
can and will continue to shape the growth of society and economy.

27
 CHAPTER 2: MAJOR MOTIVES INFLUENCING AN
ENTREPRENEUR

1. INTRODUCTION:

• In the 1990s, it was Bill Gates. In the 2000s, it was the late Steve Jobs
and the Google boys, Larry Page and Sergey Brin. Here in the 2010s,
it’s Facebook founder Mark Zuckerberg. These men not only produced
revolutionary technology, they also changed the way people worked and
interacted, and became cultural phenomena.

• Most importantly, they became fabulously rich: on Forbes’ latest

billionaires list, Gates was No. 2 (US$61 billion); Page and Brin tied at
No. 24 (US$18.7 billion each); Zuckerberg was No. 35 (US$17.5
billion), while the estate of Jobs was worth some US$9 billion, good for
No. 100.

• These ultra-successful businessmen are often held up as examples of the

archetypal entrepreneur: huge appetite and tolerance for risk, with
corresponding monetary payoff to match. However, another ingredient
common to these entrepreneurs was hard not to miss: their firm
motivation.

28
 • As we all know, entrepreneurs are known for their persisting tenacious
attitude, their huge will power and of course, a deep burning motivation
that propels their engine to work long hours, and attempt to build a lofty
career from scratch.

• Although there lies a difficult road full of stress, burnout, financial

instability, lack of support etc., a real entrepreneur carries those
obstacles with utmost dedication and hard work.

• This is because he/she knows that at one point all these obstacles will
pay off to something rewarding and gratifying. He/she knows that the
secret of getting ahead is getting started.

• In this chapter, we will discuss the major motives and factors that
influence an entrepreneur to jog through the innumerous challenges and
risks that lies in front of him/her, and yet emerges as a winner.

2. ENTREPRENEURIAL MOTIVES:
Entrepreneurs are a mysterious breed. Journalists and biographers are constantly
trying to “figure out” and nail down the personality traits reserved for those who
choose to start their own businesses.

Many people assume that entrepreneurs are motivated by passion, dreams or pure ego.
While this is undoubtedly true for many entrepreneurs, others would admit to having
ulterior motives.

Some of them are listed and explained below.

• Passion
• Feeling of accomplishment
• Personal Growth
• Sense of Control
• The need for achievement
• The need for Power
• The need for Affiliation
• Motivation to levels of commitment in social changes
• To have better quality life style

29
 • Desire to make money
• Flexibility
• Legacy
• Job satisfaction
• Religious conviction
• Competence motivation

2.1 Importance of passion: -

• For those who are passionate about what they do, work can actually be
an exciting and invigorating experience.
• Passion is more than just an important factor in determining whether or
not an entrepreneur will succeed. Without passion, success is
impossible.
• Think of any successful businessman and it’s certain that they possess
one trait. When the foremost executives talk about their field, they do
so with an undeniable magnetism and enthusiasm. They truly and
deeply love what they do.
• The road to success is more than just difficult -- it’s also
overpopulated. Caring about what you do is necessary to successfully
overcome competitors and any other adversity.
• Doing what you love doesn’t mean you’ll literally work less. Quite the
opposite — through loving your field, you’ll naturally want to work
more than anyone else.

2.2 Feeling of Accomplishment

30
 • Feeling a sense of accomplishment, and feeling proud of the work
you've done, helps people feel like they're progressing in their work.
• When you feel a sense of accomplishment, you naturally become more
engaged in your work, and more motivated to maintain and improve
their good work.

2.3 Personal Growth

• In an entrepreneurship, personal development improves effectiveness.

It empowers staff to produce better results and meet their targets.
• If you are an entrepreneur, you really need to devote time to bettering
yourself because if you want to be successful in your endeavor, you
will likely need to make some changes to your belief system as well as
how you think and act.

2.4 Sense of control

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 • The desire for control motivates many entrepreneurs who wish to
attain a leadership position. When you’re the leader of your own
organization, you’ll get to control a lot of factors, from who gets hired
and at what salary to what new strategic directions your business heads
down etc.
• Having a sense of control” often means doing a lot of stuff that isn’t
fun. It means developing the self-discipline to stick to a task when
everyone else has gone home. It means being able to work with
talented people even if you don’t like them personally.
• And it means holding on to your principles even when the temptation
is to cheat, or take “the easy way.

2.5 The need for achievement

• The need for achievement means the motivation to do well, strive to

attain excellency, face challenges and obstacles to achieve the goal.
• The need of achievement may be the greatest motivating factor that
fuels an entrepreneur to move forward.

32
 • People with low need for achievement or unwilling to take chances
to test their skills and abilities and they seem to be more motivated
by fear of failure rather than by hope and expectation of success.

2.6 The need for Power

• Need of power means the motivation to control, influence and

to have impact on others and change the situations.
• Entrepreneurs focus on how they can be by increasing their power by:
o Clarity with simple choices around discipline.
o Influence with simple choices around supporting others.
o Impact with simple choices around creativity.
o Energy with simple choices around self-understanding and
insight.
o Confidence with simple choices around values.
2.7 The need for Affiliation

• High need for affiliation has mostly been associated with individual
whose desire in life is to establish, maintain or renew affective
relationship with others.
• They potentially tend to be good workers
• As an entrepreneur, the need for affiliation to certain extent may
contribute to the drive for maintain effective business networking.
2.8 Motivation to levels of commitment in social changes

33
 • An entrepreneur aims to make an impact on human wellbeing
and effect social change
• This includes
1. Providing coeducation
2. Connecting and empowering women
3. Promoting Peace and conflict management
4. Social development and gender equality
5. Contributing to the eradication of poverty and hunger
2.9 To have better quality lifestyle

• An entrepreneur is always trying to work out something new or tries

things in a different manner. They don’t hesitate to put out things in a
different manner.
• With continuous experiments they slowly start to realize the potential
and outcomes which they can produce. When a person gets experience
in life, not only in work but in all other aspects as well, it teaches them
what real value of life is.

34
2.10 Desire to make money

• Entrepreneurs play an important direct and direct role in maintaining

healthy economy. Paying taxes on time, helping employees maintain a
standard of living, being a healthy part of the supply and demand chain
of economics etc.
• The reason you have electricity, your phone, laptops etc. is because a
scientist invented the fundamentals, and then the entrepreneur mass
produced it, packaged it, and then sold it to you.

2.11 Flexibility

• A flexible entrepreneurs understand that the world and the environment

in which they operate are constantly changing. While they must focus on
the end game, they must adapt their strategies and offerings to meet
changing market conditions.
• You can work your own hours, wherever you feel like working, and
set your own goals and responsibilities. Just be aware that
entrepreneurship is extremely demanding, especially in the early
stages of growth, so working your own hours doesn’t always mean
working fewer hours or working under less stress.

35
2.12 Legacy

• As an entrepreneur, you have the ability to make an impact, inspire

future generations and leave a legacy of your leadership.
• Your entrepreneurship legacy is actually years in the making and the
product of the many decisions, actions and even mistakes you make
throughout your career.
• This motivation is one of the strongest for entrepreneurs, because it
can’t be achieved simply, and it lasts a lot longer than money or
experience.
2.13 Job satisfaction

• Job satisfaction is very important in an individual’s life. The higher the

job satisfaction, lesser will be stress and anxiety created due to job.
• One will not feel drained of energy. Despite a long and tough day, one
will feel motivated to get up and go to work.
• Higher job satisfaction leads you to become a high achiever and
performer while lower job satisfaction brings you down to the other
extreme.
2.14 Religious Conviction
• Religion can be very important for an entrepreneur depending on their
clients, their investors, and their society.

36
 • Some case studies show that some of the entrepreneurs’ decisions
were guided by their religious beliefs and values, which, in turn,
motivated them to start their social enterprises.
2.15 Competence Motivation
• Competence motivation is a drive to do high quality work.
• Competence motivated entrepreneur seek mastery in job or tasks
that they are undertaking, develop problem solving skill and strive to
be innovative.
• In general, they tend to perform good work because the inner
satisfaction they feel and esteem they gain from others due to their
competence.

3. FACTORS MOTIVATING THE ENTREPRENEURS:

1. Internal Factors
a. Desire to do something new
b. One’s occupational background
c. One’s educational background
d. Business experience in same or related line
e. Become independent
f. Be recognized for one’s contribution
2. External Factors
a. Government assistance and support
b. Availability of financial assistance
c. Encouragement from big business houses
3.1 Internal Factors
Internal factors are those inspirational drives that happen
gradually in the process of an entrepreneur as growing up
and finally Shape Up his entrepreneurial personality. This
includes his experiences or events in life within the family, in
neighboring areas, schooling and University etc.
3.1.1 Desire to do something new

37
 • Entrepreneurship is the process of creating something new with
Value by devoting the necessary time and effort assuming that
company in financial mental and social risks and receiving the
resulting the walls of the monetary and personal satisfaction and
independence.
• If you start thinking then you find that every day is the new day
to do new things. You never know when is your last day. As
Chetan Bhagat said, “we all are here like a validity sim cards” the
simple thing is that you don't know your validity. So just go
ahead do something new. Do something which gives you
happiness and also bring a smile on others face.
3.1.2 One’s occupational background
• Many times, the entrepreneur is motivated to work on an idea
that comes in his mind while working with an enterprise.
• He finds an exclusive opportunity to work in a field where the
experience of his accepting job can help him find success.
• In 1995, a computer programmer started auctioning off stuff on
his personal website. AuctionWeb, as it was then known, was
really just a personal project, but, when the amount of web traffic
made it necessary to upgrade to a business Internet account,
Omidyar had to start charging people fees. He actually hired his
first employee to handle all the payment checks. The site is now
known as eBay.

3.1.3 One’s educational background

38
 Ralph Lauren

• Being a successful entrepreneur isn't about how many degrees or

diplomas you have it's not even about how which you are but it is
about how much you know.
• Fashion industry Titan Ralph Lauren graduated High school in
New York but later dropped at college to join the US army. He
was working as a sales assistant at US men's wear store when he
began to wonder if men were ready for something more colorful,
specifically when it came to ties.
• Today Ralph Lauren corporation is now a global multi-
billion-dollar enterprise
• As of 2018, Forbes estimates his wealth to be 7.2 billion dollars
which makes Ralph Lauren the 91st richest person in America.
3.1.4 Business experience in same or related line

Eric Yuan- Founder of Zoom Applications

• Business experience in the same or related field can also help an

entrepreneur to become successful.

39
 • Small bookstores can grow into big publishing houses and a
small sweet shop can turn into a chain of restaurants etc.
• What we need is the motivation and the hard work to fuel these
dreams
• In 2012, after working for a Silicon Valley communication
startup for years prior, Eric Yuan founded the communication
platform Zoom. In an interview with Thrive Global, Yuan says
that Zoom started as a daydream, a solution to a long-distance
relationship that required a 10-hour train ride to see the other.

• Now, Zoom is used by more than 750,000 companies to keep

their teams connected through video and audio conferencing,
collaborative workspaces, chat, and more. The real-time, face-to-
face aspect of Zoom makes it easier for companies to stay in
touch, so people can easily work from home or stay connected
while working remotely or across several office locations.

3.1.5 Become independent

Howard Schultz- Former CEO of Starbucks

• In most jobs people may find themselves tied up with rules.

Procedures, traditions and stereotypes that bind them and affect
their creativity.
• The work atmosphere suffocates and leaves no scope for
flexibility or independent thinking.
• Due to these reasons entrepreneurs think in terms of doing things
in their own terms and ways and to produce better results.
• People, who by nature are independent, confidence and
hardworking can strategize on business related issues and are
more prone to start their own ventures.

40
 • The man who revolutionized the coffee industry and is worth an
estimated $2.8 billion (Forbes 2018) grew up in a housing project
in Brooklyn. When Schultz was 7, his father, a truck driver, broke
his ankle on the job. He had no health insurance or worker’s
compensation and the family was left with no income. It was
a defining moment for Schultz, who has said he saw the
hopelessness and despair his parents went through during that
time.

• To pay for college, Schultz worked as a bartender and even sold

his own blood. In the early 1980s he joined Starbucks, which had
just a few stores in the Seattle area. He saw the potential for the
small brand to grow nationally while maintaining a quality
product.

• By 2000, Starbucks had grown into a globally recognized brand

with more than 3,500 stores and $2.2 billion in annual revenues.

3.1.6 Be recognized for one’s contribution

• Another thing Peculiar to entrepreneurs is to remain in the
limelight and be perceived as the heroes in their respective field
whether they work on a niche, serving a limited market or
undertaking a business covering larger population, they always
create standard and Benchmarks achievements.
• As a result, entrepreneurs are recognized as leaders for their
contribution.
3.2 External Factors
3.2.1 Government assistance and support
• Supportive policies of the government are an important external
factor that promote entrepreneurship.
• The government assistance and support may be in the form of
availability of industrial or developed resources in an Industrial
Estate, technical and advisory support from government etc.
3.2.2 Availability of financial assistance
• The Government of India has established a number of Financial
Institutions that extend financial services to entrepreneurs in the
form of term loans subsidies a capital venture and bonds.

41
 • Several banks and Financial Institutions provide special purpose
loans to micro small and medium industries to help them in this
process of entrepreneurship.
• Timely availability of adequate financial support motivates
people to take up entrepreneurial career.
3.2.3 Encouragement from big business houses

Elon Musk

• Encouragement from big entrepreneurs is an important

external motivator for small entrepreneurs planning to set
up small businesses.
• Large firms open entrepreneurial
avenues for many small and medium businesses to act as
feeders to the big businesses. for example, a big car
manufacturer may tie up with many smaller companies for
supply of various car components.
• Elon Musk has opened up Tesla car battery patents for use by
anyone, which obviously will benefit his business as well as
theirs.

4. CHARACTERISITICS OF PEOPLE WITH HIGH

MOTIVATION:

1. A person with high motivation likes to shoulder responsibility

2. A person with high motivation likes to take moderate risks and is good in
calculating risks
3. A person with high motivation wants to know the results of his efforts.
4. A person with high motivation tends to be creative and innovative.
5. A person with high motivation prepares himself to face adversities.

42
6. A person with high motivation makes effort to improve future conditions

5. CONCLUSION:
Be it an early-stage start-up or a late-stage one, for any company to
scale, staying motivated is a key trait its founder needs to have. Lack of
the same could have disastrous effects on the company — deadlines are
missed, employees begin to have a lackadaisical attitude and eventually
the revenue or growth is affected.

What entrepreneurs need to keep in mind is that even after a failure,

regaining motivation is the key to success. While it won’t be something
that happens overnight, the trick lies in pulling yourself out of the
situation, find solutions with the help of your team members and start
afresh.

43
 CHAPTER 3:- HOW TO IDENTIFY AND SELECT A GOOD
BUSINESS OPPERTUNITY

1. Learn the Industry

Although many potential entrepreneurs lack concrete

ideas, most know the industry that interests them.
Whether it is an industry where they have worked their
entire careers or a new industry, understanding your
target industry is an indispensable first step to building a
successful start-up.

Finding an unmet customer need in an industry is the key

first step to a new business; your experience in the industry can help you identify such
an opportunity. Learning as much as you can about recent developments within your
industry can help trigger ideas. New demographic trends, regulations, technical
innovations, scientific discoveries, and even market-wide setbacks in a specific
industry can create the opportunity for a new business idea. To keep your finger on the
pulse of a market, most industries have sector-focused websites, research journals,
online forums, trade publications, and conferences focused on the business news.
Spend your time researching, reading, and learning because the more you know about
the industry, the higher the chance you will develop a good start-up idea.

2. Meet People and Ask Questions

The simplest way to come up with an idea for a

new business is to focus on what people want.
Too many businesses fail because they try to
create a new need, instead of focusing on
solving one which already exists. By providing
your customers with an easier, quicker, cheaper,
or better solution for a problem, your start-up
will be more likely to succeed than one which
does not already have a target market.

To understand the challenges people, face, ask them. Meet people in your target
market and get to know them. Ask meaningful questions about how they do business,

44
what problems they face and how they use a product. Most people will happily share
information with you, if they believe you are genuinely interested in learning more
about them. Pay attention to what they tell you because their words are a goldmine of
start-up ideas. Keep in mind that people who are accustomed to working a certain way
may not necessarily see the inefficiency or problems in the way they work. You may
have to infer the problems from their narrative.

If you don’t know anybody in your target market, put yourself out there. Starting a
new company requires entrepreneurs to act like extroverts and to take the initiative to
reach out to people. Attend industry conferences and trade shows. Join a local industry
group and go to a meetup. If you are reluctant to meet others face-to-face at the early
stage of your start-up, you can engage potential customers through websites and
forums. The more people you interact with, the easier it is to identify common
problems in your market. Such outreach to like-minded people is also a great way to
meet potential co-founders.

3. Take a Break

Once you have an idea of the

problems facing the participants in
your target market, it is time to take a
break. Relax and ruminate about other
things. This is a necessary step on the
path to developing a good idea.
Research shows that the human mind
is more likely to identify creative solutions to a problem when it is not consciously
focusing on that problem.

The time away from actively thinking about your business will allow your mind to
wander, organize the knowledge you have gained, and make connections with other
experience you have. Believe that an insight will emerge but resist the urge to try to
force one.

4. Identify a Problem or Need

Use the information you have gathered to identify a problem to be solved or a need
that is unmet. In developing your ideas, it’s best to keep in mind a couple of rules of
thumb.

45
First, to develop a business idea often the best place
is to start is with something that you have
experienced personally. If your understanding of a
problem is deep and personal, you will develop a
better solution. If you have a special skill or passion,
that can become the seed for your business. Your
unique solution to a personal pain-point or setback
can also become the basis for a new business.

Second, almost all new business ideas are incremental improvements or a novel way
of approaching a pre-existing business model. In the popular press, business ideas
often are classified into two categories: an idea for something completely new or an
idea for improving something that already exists. This is a false division as the
category of genuinely new business ideas is vanishingly small. Even the most
innovative and novel firms are offering improvements on old business models: Twitter
improved text messaging, Netflix improved movie rentals, iPhone improved cell-
phones.

Once you have one idea, don’t stop there. Try to come up with at least three good
ideas for the common problems of your target market before moving to the next stage
– brainstorming.

5. Brainstorming — Not as Worthless as You May Think

For many people, “brainstorming” has negative connotations. The word conjures
images of a middle-school English class or a poorly-run business meeting where hours
were wasted.

However, brainstorming is an important part of the start-up process and should not be
neglected simply because of past bad experiences. Ralph Keeney, an emeritus
professor at Duke’s Fuqua School of Business and author of Value-Focused Thinking:
A Path to Creative Decision-Making, claims most brainstorming sessions fail because
they are not focused enough. Keeney encourages limiting the focus of brainstorming
to a single well-defined objective. The goal of brainstorming at this stage of a start-up
is to determine which of your new ideas would be the most feasible ones to pursue.

46
Following Keeney’s approach, you should handle your own start-up idea
brainstorming session by:

i. Giving a list of the common problems the target

market faces before the meeting, and allowing
enough time for participants to review the
problems.
ii. Presenting each problem to the group, along
with your idea for solving the problem. Have
participants suggest ways the idea solves the
problem.
iii. Discussing ways, the idea fails to solve the
problem. At this point do not allow discussion
of alternative ideas for solving the problem.
iv. Asking for alternative ways to solve the
problem.

Repeat the process for each of your ideas. Keep detailed notes of everything that was
said during the brainstorming session. It is a good idea to record the session to allow
you to review everything. The brainstorming does not have to be conducted in a
person-to-person meeting. It can also be done through emails, an online forum or
other collaboration technologies. What is important is to share your ideas with others
and have them critique those ideas. Platforms such as Quora can be used to effectively
for this purpose.

6. Put a Stake in The Ground

Starting a new business venture is a thrilling but a long and arduous adventure. After
brainstorming and considering the pros and cons of each of your ideas, determine if
any still appeals to you. If you believe that
you can build a viable business on it, choose
the idea. It might have diverged dramatically
from what you initially thought. That is fine
so long as the process leads you to develop a
good foundational idea for your business.

Once you have settled on the idea, it is time

to put a stake in the ground. That means that
you move on from the brainstorming phase to starting actual work on the various tasks
that will transform your idea into a real business.

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Is a myth that a great business idea simply strikes a person? While the idea might
appear to pop into your head, that serendipity will only occur if you have done the
groundwork of investigation and reflection. Thus, the best way to develop of sound
start-up idea is to:

i. Find out everything you can about the industry where you want to pursue a
start-up
ii. Speak with as many target consumers as possible
iii. Identify a common problem among your target market
iv. Think of business ideas to solve the problem
v. Brainstorm to uncover the strengths and weaknesses of your solution
vi. Settle on an idea
vii. Take the next steps towards launching your start-up.

Once you have identified a potential business idea, now move on Researching and
Validating Business Idea that will guide you through the process of determining
whether the idea is a viable one, before you launch your business.

6.1 RESEARCHING AND VALIDATING YOUR START-UP IDEA

80 percent of businesses fail in the first 18 months of their life. A sobering

statistic for any would-be entrepreneur, if ever there was one. Many of these
businesses are started by people who are passionate and energetic, but they fail
to appropriately validate their underlying business model. Actually, there are
several steps that you can undertake to prevent this fate for your start-up. This
article provides guidance on how to perform research and validation on your
idea in a systematic and comprehensive manner
Building a start-up that takes passengers to Mars may be a very interesting idea
but it may not necessarily be the basis for a financially successful
business. Most start-up businesses fail because they do not appropriately vet
and validate their idea. Here are seven questions you should consider as you
decide if your idea is

48
 ❖ a viable one
❖ suitable for you.

i. Do you have the skills that your chosen business will demand of you?
ii. What is the specific mission of your business? What problem are you solving
and who are you solving it for?
iii. Have you obtained validation from potential customers to prove that there is a
market for the product or service you are offering?
iv. What initial resources and investment do you need? Do you have the required
funds, or will you need to raise them from other sources?
v. Will the business be able to earn a profit in a reasonable time? And well before
you run out of your invested capital?
vi. What type of competition will you face, now and in the future?
vii. Will you be able to pivot as you adapt to new circumstances and information
about your business?

7. Validating Your Idea

7.1. KEY QUESTIONS TO HELP YOU VALIDATE YOUR START-UP IDEA

7.1.1 WHAT ARE YOUR GOALS & MOTIVATIONS?

Before you set up a new business, it is

essential to consider the demands the
business will place on your lifestyle and
if those comport with the type of life you
want to build for yourself in the long-
term. Factors you might want to take into
account include wealth goals, family
commitments, hobbies, lifestyle choices,
your age and your stress tolerance. If you haven’t already done so, you should
review our article on different types of start-ups to better understand
investment needs, risk profiles, lifestyle implications, and upside potential
before you decide which type best matches with your business idea, your
personality, and your lifestyle desires.

For example, are you looking to create a high-growth, highly scalable Silicon
Valley start-up? Entrepreneurs taking this route tend to work around the clock
for a few years before “exiting,” either by becoming acquisition targets for
larger businesses or by going public on the stock market. This strategy offers
the highest financial rewards and perhaps the greatest prestige, but also comes

49
 with the most risk. Unless you’re already independently wealthy, you’ll also
need excellent communication skills to convince business angels and venture
capitalists to give you the external funding your business requires.

7.1.2 WHAT PROBLEM ARE YOU SOLVING?

Successful businesses have a well-defined sense of purpose. In a few years, this

might form the basis of an inspiring “Mission Statement” on your website. But
at the early-stage of your business, it is enough to have a clear and focused
sense of the real-world problem that you are attempting to solve.

The happiest, most authentic business owners are

those who work on a problem that they care about
personally and are able to create a solution that
customers are prepared to pay for. The nature of the
mission will vary from entrepreneur to entrepreneur.
The most important thing is that you are solving a
problem that people care about enough to pay you
money for.

It is also necessary for you to know who you’re solving this problem for. What
is your target market? Are they young or old, rich or poor, sporty or unfit?
Rather than trying to please everyone, analyse your mission and your customer
segment to develop a very clear understanding of how you will sell to them.

7.1.3 HAVE CUSTOMERS VALIDATED YOUR IDEA?

Eric Ries’ famous Lean Start-up methodology posits that start-ups are guesses
at a viable revenue model. In the validation
stage, it’s time for you to determine if
customers will buy what your business has to
offer them. You’ll also gain invaluable
insights into what your customers’ offices
and workspaces look like and how they shop.
Most investors will not give you a term sheet
without seeing proof of customer validation.

In order to test your business hypothesis, you’ll need to create what Eric Ries
calls a “Minimum Viable Product” (MVP), a version of your customer offering
that has the lowest level of complexity required to provide value to your target
market. This allows you to test your product idea rapidly and frequently while

50
 expending minimal resources, greatly reducing the probability of creating
something that no one wants.

What an MVP looks like in practice varies from company to company. If your
business produces a technical product, such as a 3D Printer, it will be necessary
to manufacture one or more basic prototypes and give them to users for testing.
To receive investment from a bank, a fledgling marketing consultancy might be
asked to show evidence of one or more existing clients.

Another great way to validate your business idea is to submit it to crowd

funding websites such as Indiegogo or Kickstarter. Your friends and family
will probably support your venture come what may, but projects that attract
significant donations from strangers online are likely to have better potential as
a business.

In each of these examples, you’re looking to see whether customers will buy
your products or services at the price you set. This is where the revenue model
you develop comes in handy. How do you know what price to sell at? A great
place to start is to look at the prices offered by your competitors.

7.1.4 WHAT INITIAL INVESTMENT WILL YOU NEED?

Some businesses require a lot of

upfront investment, whereas others can
generate a positive cashflow fairly
quickly. If your start-up falls into the
former category, you’ll need to work
out how you will handle your finances
while you’re waiting for your product
or service to gain traction. Typical
ways of doing this include bank loans,
crowdfunding, venture capital and
continuing to work a day job.

As a minimum, you need to create a sales forecast, budgeted expenses, and a

cashflow forecast. This will allow you to calculate how long it will take for
your business to become profitable. While your business is losing money, it is
also essential to keep your “runway” in mind – the number of months you have
until your savings or investment capital run dry. A business that fails to “take-
off” (i.e., become profitable) before its runway runs out will have to shut down.

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 Even if you do not plan to create a formal business plan, it is good idea to
summarize your analysis of your financial situation in a formal manner that you
can track again.

7.1.5 HOW WILL THE BUSINESS MAKE MONEY ?

If your expenses exceed your income for too

long, you will go out of business. You certainly
need to turn profitable before your capital runs
out. Here are some common ways a business can
generate revenue.

Asset Sale: A customer exchanges their money

for a finite product such as a piece of fruit or a
laptop. After the sale, the customers own the product and can do with it what
they will.

Usage Fee: The more the customer uses your product, the more they pay you.
Pay as you go phones are an example of this model.

Subscription Fee: The customer pays for your product on a regular, pre-
determined basis, often monthly. Many gym memberships fall into this
category, debiting money from the client’s bank account once every month.

Leasing: When a customer is given temporary access to a particular piece of

property, businesses enter into leasing agreements. Some companies lease out
bikes for a day to enable tourists to cycle without needing to transport their
own bicycles.

Licensing: Frequently seen in the music industry, licensing occurs when

businesses give customers permission to use their intellectual property in
exchange for a fee.

Advertising: Companies like Facebook make money by providing advertisers

with user data. Customers can use their services for free, but browsing exposes
users to targeted advertisements.

Choose one or more of these methods that seem appropriate for your business
idea. You can validate your revenue source and pricing strategy with customers
during prototyping.

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7.1.6 WHAT COMPETITION WILL YOU FACE?

At the time of writing, traditional taxi

drivers are being driven out of
business by Uber, a start-up that connects
travellers to regular drivers via a
smartphone app. As such, it would be a
terrible idea to start a new taxi cab
company.

Successful business owners are aware of

current and long-term trends within their industry. One way you can acquire
this knowledge is by visiting online sources such as Spring wise or Trend
hunter to research societal trends. If you’re opening a brick-and-mortar
business, you should know about other neighbouring businesses that may
compete for your customers. Similarly, you wouldn’t want to open a high-end
retail shop in the middle of an area undergoing economic depression.

In order to ensure that your target market buys from you and not someone else,
you will require an understanding of the features, prices, and benefits offered
by your competitors and how they compare to your customer offering.

Your research should include looking through the

Internet, marketing databases and industry magazines.
You might also consider buying goods or services
from your competition directly, or putting yourself on
their mailing list. Talking directly to your competitor’s
customers and finding out what they like or don’t like
is also a good way to collect competitor intelligence.
Your aim is to understand what your competition is
doing so you can do it better. Whether you compete on
the basis of product flaws, poor customer service or cost-effectiveness,
your “Unique Selling Proposition” (USP) will become the basis of your
marketing strategy.

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 7.2 FINE-TUNE AND PIVOT AS NECESSARY

If your initial customers

like what you have for
sale, they will become
early adopters – the
lifeblood of a new
business. These early
adopters can be an
invaluable resource for
you to further validate
and fine tune your
business proposition.
Interacting with these
customers will give your
business access to
valuable information
about their needs. You
might even gain a greater
understanding of the
competition from this
process.

As you learn more about your target market, you’ll need to go

back to your original definition of the customer problem and
update your ideas. These subtle changes in direction are often
referred to as “pivots.” A baker might repeatedly hear that his
bread is too sweet compared to the competition’s and add salt
to his recipe as a result. A towel manufacturer might receive
the feedback that his products are too scratchy, leading to a
switch to softer fabrics.

Pivoting can sometimes be disheartening, particularly if

you’ve spent monthsworking on an idea that customers refuse
to buy. But the best business owners check their ego at the
door, listen to customers and change direction as needed.
The ability to pivot quickly is much more valuable to your
long-term success than trying to get everything right the first
time around.
CONCLUSION

54
The difference between a dreamer and a business owner is a
well-laid plan. Successful entrepreneurs learn their target market,
validate their business idea and are self-aware of their
shortcomings so that they match their skills and lifestyle desires
with the needs of the business they launch. Above all, they
understand that only those businesses survive that can build a
sustainable revenue stream in excess of their costs before their
investment capital runs out.

55
 CHAPTER 4: PREPARATION OF TECHNO ECONOMIC
FEASIBILITY REPORT FOR A GIVEN PROJECT

1. INTRODUCTION

Ensuring funding is the key for entrepreneurs. Given the riskiness of a new
venture, the acquisition of capital funding is particularly challenging, and many
entrepreneurs deal with it via business loans, crowd funding etc. And for that
feasibility study report is prepared to support the investment proposal.
Feasibilities for the various aspects related to technical, economical and
financial are examined in detail by the experts and consultants brought in
feasibility study report. Feasibility study report is also termed as a techno
economic feasibility study (TEFR).

2. FEASIBILITY REPORT [TEFR]

A feasibility report is used to determine the viability of an idea, such as

ensuring a project is legally and technically feasible as well as economically
justifiable. It tells us whether a project is worth the investment.

The feasibility report answers the question ‘should we implement idea’ as

MAY
follows:
BE

TEFR indicate whether the idea is feasible along with

Should we
the data and the reasoning behind that determination;
YES implement
idea?
NO conversely, it might outline the reasons why the idea
cannot or should not be implemented, or what obstacles
UNDER
must be overcome before the idea can become feasible.
CERTAIN
CONDITIO
NS

56
2.1 Objective of feasibility report

"Although [an unsuccessful feasibility study] may appear to be a failure, it's

not. The failure would have been if you had invested your own and others'
money and then lost it due to barriers you failed to research in advance.” ---
David E. Gumpert in his book “How to Really Create a Successful Business
Plan”

The main objective of a feasibility study is to determine whether or not a

certain plan of action is likely to produce the anticipated result. Although the
primary objective of the study is dedicated to showing the outcomes of specific
actions, it should begin with an evaluation of the entire operation.

A good feasibility study would review its strengths and weaknesses, its position
in the marketplace, and its financial situation. It would also include information
on a company's major competitors, primary customers, and any relevant
industry trends. By providing information on consumer needs and how to meet
them, a feasibility study can also lead to new ideas for strategic changes.

The feasibility study is a critical step in the business assessment process. In

some cases, it is advisable to hire a qualified consultant to perform a feasibility
study. To be able to provide a meaningful analysis of the data, the consultant
chosen should have expertise in the industry. It is also important for small
businesses to assign an internal person to help gather information for the
feasibility study. The small business owner must be sure that those conducting
the study have full access to the company and the specific information they
need. If properly conducted, it may be the best investment we ever made.

57
2.2 Importance of feasibility report

The importance of a feasibility study is based on organizational desire to get

it right before committing resources, time, or budget. It’s best to make these
determinations in advance, rather than to jump in and to learn that the
project won’t work. Conducting a feasibility study is always beneficial to
the project as it gives you and other stakeholders a clear picture of the
proposed project.
• Improves project teams’ focus – It gives an idea for the entrepreneur
and team about points they need to concentrate more.
• Identifies new opportunities – It can help us to uncover new ideas
that completely change a project’s scope and determines alternatives
and solutions which may otherwise not have been known.
• Narrows the business alternatives - It enables us to have a clearly
defined set of goals, motivate ourselves or our team to search for ways
of increasing the profitability of its core activities without being drifted
in undesirable directions.
• Identifies a valid reason to undertake the project – A more thorough
knowledge about our idea can be got through this which enhances
our confidence to proceed further and give us a stepwise procedure
that weigh the pros and cons of each step prior to getting into the
actual process.
• Enhances the success rate by evaluating multiple parameters – It
uncover the strengths and weaknesses of our idea, opportunities and
threats present in the natural environment, the resources required to
carry through, and ultimately the prospects for success.
• Aids decision-making on the project throughout – It is notmeant to
be a static document, it is reviewed and updated periodically to see
if goals have been met or have changedand evolved and decisions
are made accordingly.
• Identifies reasons not to proceed - There can be many reasons for
this, including requiring too many resources, which not only
prevents those resources from performingother tasks but also may
cost more than an organization would earn back by taking on a
project that isn’t profitable.

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1. FACTORS TO BE CONSIDERED

TECHNICAL ECONOMIC FINANCIAL

FEASIBILITY FEASIBILITY FEASIBILITY

MANAGERIAL SCHEDULE
LEAGAL FEASIBILITY
COMPETENCE FEASIBILITY

TEFR is made after accessing feasibility in namely 6 areas:

1.1 Technical feasibility

It establishes whether the project is technically feasible or not. Technical

feasibility involves the evaluation of requirements in terms of input,
processes, output, fields, programs, and procedures to handle the
completion of the project. It helps organizations to determine whether the
existing technical resources meet capacity and whether the technical team is
capable of converting the ideas into working systems. The potential of the
technical resources available to the firm is estimated and the requirements
of new ones are evaluated and justified. Then only the functioning of the
firm occurs smoothly under our ideas.

The following aspects need to be covered under this report:

1.1.1 Products/Services
• It explains the products or services to be produced or provided
and sold
• It also specifies product’s various physical, chemical and
mechanical properties along with their use as both finished
goods and industrial inputs.
1.1.2 Manufacturing processes
• Selected manufacturing process is described simply and
clearly with the help of flowcharts and diagrams.

59
 • Alternative processes and their difference from the chosen
one should be mentioned
• We should also explain why these manufacturing processes
are adopted.
• It is better to explain the already existing method of
manufacture in similar firms, both domestic and foreign.
• Licensing agreements and patents should also be reviewed.
1.1.3 Size of business
• Minimum and maximum rated capacity of business
• Actual capital utilization
• Level of utilization of plant capacity
• The expected growth in market share
1.1.4 Production schedule
• Availability of financing for possible expansion
• Availability of more raw materials
• Number of shifts per day
• Number of operating days per year
1.1.5 Machinery
• List of machineries, according to type and use
• Specifications, capacities and costs of each machinery
• Cost of running machineries
• Origin of machinery, whether it is local or imported
• Time required for setting up
• Details of supplier including their location, services and
warranties provided by them, time taken for delivery
1.1.6 Location
• Selection of location must be justified
• Map of the proposed location
• Geological specification of location
• Accessibility and availability of raw materials
• In case of transportation of raw materials, cost and fuel
required
• Availability of cheap or moderately priced utilities such as
power, water or fuel
• Availability of skilled and unskilled labours
• Proximity to distributing outlets
1.1.7 Layout
• It should be clearly depicted through diagrams and
descriptions

60
 • It should enable smooth work flow
• Minimum material handling and effective space utilization
should be there
• Safe and conductive working area for the workers along with
flexibility of arrangements
• Adequate safety and sanitation facilities
1.1.8 Building
• Possible location of each facilities such as office,
manufacturing units etc. must be marked along with their size
• Cost of production of each building/facility
• Whether the building/facilities already there or newly built
• Land improvements such as roads, drainage facilities etc. and
their respective cost should be included
1.1.9 Raw materials and supplies
• Types, quantity and quality of raw materials and their basis of
selection
• Cost, availability and continuity in supply of raw materials
• Volume required at each and every stage of production should
be mentioned
1.1.10 Utilities
• Amount, cost and sources of electricity, fuel, water required
• Alternative sources must also be mentioned
• Quantity and quality must be determined in accordance with
production schedule
1.1.11 Waste disposal
• Quantity of waste produced, manner of disposal and the cost
involved in it
• If 3R’s is followed , they too should be clearly displayed
1.1.12 Labour requirement
• Types and number of various labour required
• Work description of each labour
• Method of payment – daily wagers, monthly wagers etc.
• Specifications of training, if required
• Work flow diagram/organization set up
1.1.13 Contracts
• Agreement with contractors detailing on know-how,
engineering procurement, construction, financial soundness
and experience of contractors

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1.2 Economic feasibility

It is the most frequently used method for evaluating the effectiveness of a

new venture. More commonly known as cost/benefit analysis, the procedure
is to determine the benefits and savings that are expected from and compare
them with costs. If benefits outweigh costs, then the decision is made to
design and implement the system. An entrepreneur must accurately weigh
the cost versus benefits before taking an action. It directs the business
towards saving itself from an inadequate allocation of resources.

It also serves as an independent project assessment and enhances project

credibility—helping decision-makers determine the positive economic
benefits to the organization that the proposed project will provide.

Data’s required for this study can be obtained from either primary sources
as interview, mailed questionnaire, market survey etc. or secondary sources
as government agencies, trade associations, chamber of commerce, trade
directions etc.

1.3 Financial feasibility

The conduct of any activity is not possible without money. This includes
the estimation of all the costs that will play a vital part from the inception of
the project to the operational costs during the later stages of its lifecycle.
The very first thing in this study is the procurement of start-up capital. It
requires the current status of the market with respect to the project.

Means of financing shall have to conform to proper mix of share capital and
debt. This includes share capital unsecured loans from promoters or
associates, internal accruals, term loans, government subsidy or grant.
Reasonableness of promoter’s contribution in the form of equity and
interest free unsecured loans, if any, is ascertained in view of commitment
to the project.

It includes a financial analysis showing return on investments, return on

equity, break-even volume and price analysis and the details with regards to
source of funds such as equity, shares, preference shares, long term loans,
bank loans, trade credits and other sources. The potential cash flows of the
future are also calculated. It also brings forth the payback period, which
puts forward the amount of time the investment takes to break-even.

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1.4 Managerial competence

It is to access the number and skills of staff required for the proper
execution of idea. For this purpose an appropriate organization structure is
decided, then the skills and talents required by man power is determined. It
involves:
b) Activity analysis involving anticipated work flow and the
activities involved in the project.
c) Grouping of activities into tasks which employees can perform
effectively.
d) Classification of tasks is the building blocks of the organization
structure.
e) Determining inter-relationships between different positions to
decide the chain of command

1.5 Schedule feasibility

A project will fail if it takes too long to be completed before it is useful.

Time required for each phases of the lifecycle of the business are planned
and taken into account; and the future projections also needs to be enlisted.

An implementation schedule is thus prepared taking in to account when to

apply for term-loan, procurement of land site, construction of factory shed,
getting water and power connections, recruitment of human resources and
the time for commencement of commercial production. And in future, when
the project needs to be expanded and so.

1.6 Legal feasibility

Every country has its own respective legal implications like zoning laws,
data protection acts or social media laws. Any legal requirements that may
hinder business activity need to be considered. This analysis explores all the
legal factors that may conflict with the proposed business. All the relevant
laws or protection acts are taken into account. An organization may save
considerable time and effort by learning any type of locational constraints
its business may face due to legal requirements.

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2. MAJOR STEPS IN CONDUCTING FEASIBILITY STUDY

Mainly there are 7 steps and they are

2.1 Preliminary analysis

It involves two parts- outlining our project plan and finding out whether
there are any obstacles that would be too difficult to overcome.

Outlining project plan involves emphasizing our project area, target market,
as well as unique selling points and advantages our product or software has
over similar ones. Finding out obstacles that can come across our path from
start can give us a better view of monetary short come or unavailability in
our path.

2.2 Project income statement

It involves working out the expected income of our completed project. This
helps us to work out whether we will be able to cover all expenses involved
in the project itself.

2.3 Market survey

We need to do some market research and conduct a market survey to gain

better insight into what kind of revenues we can expect from our project.
Conducting a market survey is essential. In big firms, a third person is hired
for this purpose.

The market survey needs to consider aspects like demographics,

geographical influence on the market, competitor analysis, and determining
the volume in the market area, estimated market share, as well as
opportunities for expansion in the market.

64
2.4 Business operations and financial costs

Plan out all business operations involved in the project in detail. This helps
determine the project’s technical feasibility and the costs involved.

Things that should be outlined in this section include costs of equipment,

merchandising methods, location, personnel, supplies, and overhead
expenses (tax, utilities, etc.).

2.5 Opening day balance sheet

The opening day balance sheet keeps track of various aspects of their
finances such as assets, liabilities, and owner’s equity. It is called a balance
sheet because our assets must be equal to our liabilities and owner’s equity,
maintaining balance. It will be easier to maintain if we have someone from
accounting background.

2.6 Review and analyse

In this step, we review all of our researches and analyze the data collected.
It is important to take some time to reflect on our project and ensure
everything looks good.

We re-examine each step to see if anything needs any modification like

comparing our estimated income with our expected expenses and liabilities.
This helps us to determine whether the income will cover the costs –
thereby confirming whether the project is feasible or not.

It is also advisable to evaluate any risks that might face and map out our
plan B.

2.7 Present findings to stakeholders

The last step in this process is to present our findings to the stakeholders
and decide whether or not to go ahead with the project.
If any concerns are raised, we need not discard the project but can go back
and re-evaluate our budget or approach to help the project align more with
our long-term business goals and to regain our potential stakeholders.

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3. DATA COLLECTION

Mainly there are 7 methods for data collection

INTERVIEW QUESTIONNAIRE REPORTING EXISTING DATA

COMBINATION
OBSERVATION FOCUS GROUP
RESEARCH

3.1 Interview

An interview is a face-to-face conversation between two individuals with

the sole purpose of collecting relevant information to satisfy a research
purpose.

3.2 Questionnaire

This is the process of collecting data from a group through a series of

questions and prompts to receive a response from individuals it is
administered to.

3.3 Reporting

It is the process of gathering and submitting data that is further subjected to

analysis. The key aspect of data reporting is reporting accurate data because
of inaccurate data reporting leads to uninformed decision making.

3.4 Existing data

This is the introduction of new investigative questions in addition to/other

than the ones originally used when the data was initially gathered. An
example would be sourcing data from an archive.

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 3.5 Observation

This is a data collection method by which information on a particular item

is gathered through observation. The nature of the observation could be
accomplished either as a complete observer, an observer as a participant, a
participant as an observer, or as a complete participant.

3.6 Focus groups

This is a qualitative method of research involves asking open-ended

questions to a group of individuals usually ranging from 6-10 people, to
provide feedback. It falls under the primary category for data based on the
feelings and opinions of the respondents.

3.7 Combination research

This method of data collection merges the use of innovative methods to

enhance participation to both individuals and groups. It is a combination of
interviews and focus groups while collecting qualitative data. This method
is useful when addressing sensitive subjects.

4. FEASIBILITY STUDY TEMPLATE

After we’ve conducted all of the necessary steps mentioned above, we should
have a comprehensive feasibility report to present to stakeholders.

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4.1 Executive summary

The executive summary provides an overview of the content contained in

the feasibility study document. This section is important since it provides a
higher level summary of the detail contained within the rest of the
document.

4.2 Description of products and services

This section of the feasibility study provides a high-level description of

theproducts or services which are being considered as part of the
feasibility study. It is important that this description captures the most
important aspects of the products or services that the organization is
considering as well as how it may benefit customers and the organization.

4.3 Technology considerations

This section of the feasibility study should explain any considerations the
organization must make with regards to technology. Many new initiatives
rely on technology to manage or monitor various functions. New
technology may be developed internally or contracted through a service
provider and always result in costs which must be weighed in determining
the path forward.

4.4 Product/Service marketplace

This part of the feasibility study describes the existing marketplace for the
products or services the organization is considering. It may describe who
the target market consists of for these products or services, who the
competitors are, how products will be distributed, and why customers might
choose to buy our products/services.

4.5 Marketing strategy

It provides a high-level description of how the organization will market its

product or service. Some topics which should be included are: how does an
organization differentiate itself from its competitors; types of marketing the
organization will utilize; and who the organization will target. Marketing
efforts must be focused on the right target groups in order to yield the

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 greatest return on investment.

4.6 Organization and staffing

With many new products or services there may be a need for additional
staffing or for an organization to restructure in order to accommodate the
change. These are important considerations as they may result in increased
costs or require an organization to change its practices and processes.

4.7 Schedule

It is intended to provide a high-level framework for implementation of the

product or service being considered. This section is not intended to include
a detailed schedule as this would be developed during project planning
should this initiative be approved. This section may include some targeted
milestones and timeframes for completion as a guideline only.

4.8 Financial projections

Financial projections are one key aspect of new project selection criteria.
The financial projections for the feasibility study provide a description of
the financial projections the new initiative is expected to yield versus
additional costs. There are many ways to present these projections like Net
Present Value (NPV), cost-benefit calculations, and balance sheets etc. This
section should also provide the assumptions on which the illustrated
financial projections are based.

4.9 Finding recommendations

This section of the feasibility study template provides an area where to

summarize the findings of the feasibility study and explain why this course
of action is or is not recommended. This section may include a description
of pros and cons for the initiative being considered. This section should be
brief since most of the detail is included elsewhere in the document.
Additionally, it should capture the likelihood of success for the business
idea being studied.

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5. CONCLUSION

Feasibility studies are a necessary step in the project management process. The
principal function of the feasibility study is the decision of moving forward
with the business. Since it cannot be reversed, it is always better to take
calculated ones instead of fixing wrong ones in the future. All the factors
related to the business are taken into account which will give a clear picture of
the different aspects produced. It helps us to ensure that they are being utilized
in the most appropriate manner. So, the important resources are not only saved
from being wasted on the wrong projects, but also invested into relatively
profitable ones in the future.

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 CHAPTER 5: PREPARATION OF A PRELIMINARY
PROJECT REPORT FOR A GIVEN PROJECT

1. INTRODUCTION:

A Preliminary Project Report (PPR) serves as the roadmap for developing a

project from a business idea for launching a new product into the market. It is a
document which provides all the information on economic, technical, financial,
managerial and production aspects. It enables the entrepreneur to know the
inputs needed to be invested and outputs from the project such as production
and profit before implementing it. It contains information in detail about land
and buildings required, manufacturing capacity per annum, manufacturing
process, machinery and equipment along with their prices and specifications,
requirements of power and water, requirements of raw materials, manpower
needed, marketing cost of the project, production, financial analysis and
economic viability of the project. It helps the entrepreneur to understand
whether the project is sound in the initial stage itself. If the project is sound, the
entrepreneur moves forward to get financial assistance from banks or financial
institutions. So a carefully prepared preliminary project report is the blue print
for the entrepreneur and the more he gets involved in its preparation the better
he will be able to anticipate the problems and find the solutions.

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2. CONTENT OF PRELIMINARY PROJECT REPORT

PPR should contain the following information:

2.1. Basic Information

A PPR must provide information about the

details of the industry to which the project
belongs to. It talks about the motives of
starting the business alongside products or
services to be offered. It provides information
about the present status, issues and future
prospects of the project.

2.2. Organization Structure

The project report should clearly mention the

organization structure for the project. It
should indicate the type of ownership of the
proposed business, details about the
management team, experience of the
promoters, obligations of the members and
policies of the business.

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2.3. Project Structure

2.3.1. Location
A new entrepreneur should locate his project to the existent possible, in
and around the state headquarters. There are many backwards areas
around such cities. This will also facilitate liaison with the state electricity
board, state industrial development corporation and various other

agencies.

2.3.2. Raw material

The raw materials required and their sources should be clearly mentioned
in the preliminary project report.

2.3.3. Power
The power supply required for the buildings, manufacturing of products
and basic requirements should be specified. The calculated cost of power
supply has to be mentioned.

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 2.3.4. Water
Amount of water required for the machineries, buildings, construction and
basic requirements has to estimated and the cost has to be mentioned in
the report.

2.3.5. Man Power

The number of labours (employees) required for running the enterprise
successfully has to mentioned in the report. An estimate of labour cost per
head has to be clearly specified based on the selected project.

2.4. Technology

PPR should clearly explain the technology required for the project to be
carried out successfully. The project chosen should not be for a product which
requires sophisticated technology, necessitating foreign technical collaboration.
It is better to go in for a product with a proven technology that is available and
where the entrepreneur himself is well versed with the required technology.

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 2.5. Methodology

Methodology provides a framework for conducting a strategic business

Planning study and to map out an actionable plan for the business. The
Problems are analyzed and suitable methods are adopted for solving it and run
the enterprise to high level success.

2.6. Machinery

While deciding the project the entrepreneur should assess the availability of
machineries. No compromise should be made with the quality of machines
needed for the project. Even if they are little expensive good quality machines
has to be purchased as they will pay back in the long run. The cost, quality,
availability and maintenance cost of machines has to clearly described in PPR.

2.7. Market Information

A project should also mention the demand prospects,

strategies and price of the product or service the
business intents to offer. The details about the after-
sales support are also to be stated. In other words,
there should be a comprehensive marketing plan in
place including the costs to execute such a plan.

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2.8. Financial Feasibility

The report must feature a detailed picture of the financial details of the project.
It should describe the total capital requirements, working capital required,
sources of finance alongside details about owner’s and borrowed fund. It must
present a projected profit and loss account, balance sheet alongside the
estimated rate of return and break-even point.

2.9. Technical Feasibility

PPR should provide information about all technical aspects of the project.
It should cover information on technology selected for the project,
production process, capacity of machinery, pollution control plants etc. The
inputs, processes, output, programs and procedures to be handled for the
completion of project is evaluated here.

2.10. Time

The stipulated completion time and goals of the project has to be clearly
mentioned in the report.

2.11. Social Responsibilities

The proposed units draw inputs from the society. Hence the contribution of
project to the society in the form of employment, income, exports and
infrastructure has to be explained in the report. The output of the business
must be indicated.

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3. SIGNIFICANCE OF PRELIMINARY PROJECT REPORT:

An objective without a plan is a dream. The preparation of a report is of great

significance for an entrepreneur. Its serves two essential function.

First and most important, the PPR is like a road map. It describes the direction of
enterprise going on, what is its goal are where it wants to be and how it is going to
get there. It also enables the entrepreneur to know that he is proceeding in right
direction.

The second main function of the preliminary project report is to attract lenders and
investors. Preparation of project report is beneficial for those enterprises which
apply for financial assistance from financial institutions and the commercial links.
It is based on PPR that the financial institutions make appraisal if the enterprise
hires financial assistance or not. In most cases quality of project report weighs
heavily in the decision to lend or invest funds.

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 Following are the other reasons why we need preliminary project report

• It helps in approaching District Industries Centre for obtaining provisional

or permanent registration.
•It helps in securing supply of scarce raw mater.
• It helps the process of firming up technical arrangement, choosing a location,
selecting machinery, determining man power, utility needs etc. required for project
implementation.

4. PARTIES INTERESTED IN A PRELIMINARY PROJECT

REPORT:

Following are the main parties interested in knowing about the preliminary project
report:
Financial institutions
Development Corporations
Commercial bankers

4.1. Financial Institutions

Financial institutions are one of the important sources of term loans both at state
as well as national levels. The aim of establishing financial institutions across
the country is to felicitate the availability of funds to business establishments.
These institutions are responsible for promoting industrial development in the
nation.
Alongside providing financial support, these institutions also conduct market
surveys and business support to those who are indulged in business. Some of the
prominent financial institutions working at the national level are:
• National Industrial Development Corporation (NIDC)
• Small Industries Development Bank of India (SIDBI)

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 • Industrial Development Bank of India (IDBI)

4.2. Commercial bankers

Commercial banks play an important role in providing funds to
entrepreneurs with varying purposes and time periods. Banks are seen to be
in the first place whenever entrepreneurs look to seek funds. Banks offer
funding by means of term loans, cash credit and an overdraft. The loans are
granted against adequate securities along with applicable interest rates.

Some of the prominent commercial banks in India which provides attractive

funding options to entrepreneurs are PNB, SBI, ICICI, and so on.

The above organizations, departments and agencies have to appraise the project in
order to evaluate the managerial and entrepreneurial capabilities of the
entrepreneur, socio-economic benefits, present and future demand of the product(s),
technical feasibility and financial viability of the project.
The preliminary project report is prepared for direct submission to financial
corporations & banks for getting loans.
5. BREAK EVEN ANALYSIS

Break even analysis is a financial tool used by an enterprise to determine the

various stages of profit, loss and zero profit. Analysis is done by using break even
chart .Break even chart is prepared by plotting volume of production in the X-axis ,
total cost and total revenue in the Y-axis.
The point of equality between total cost and total revenue is called as the
breakeven point(BEP) ie; the point at which there is neither profit nor loss for
the enterprise.

79
 It is necessary to calculate the level of production to determine the profitability of
an enterprise. Break even analysis also helps in studying the relationship between
fixed cost, variable cost and revenue.

6. NETWORK ANALYSIS

Network analysis is a method used to analyze, control and monitor various works in
the project. It is done by using two methods: Critical Path Method (CPM) and
Project Evaluation Review Technique (PERT).
Critical Path Method is event oriented and is used for completing projects which
involve activities of repetitive nature. PERT is activity oriented and is used for
onetime projects. These methods help to identify the interdependencies between
each tasks and to determine the duration required to complete them. It also helps in
the calculation of cost of the project.

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7. PROFITABILITY ANALYSIS

Profitability analysis is used by entrepreneurs to:

• Predict the profitability of future projects.

• Improve the profitability of present projects.

• Identify most or least profitable customers, products, or services.

• Design an effective product to increase market share and maximize profits.

• Adapt to changing customer demands and preferences.

Profitability index method:

The profitability index (PI) is used to rank investments and it helps to select the
best investment that is to be made. It is the ratio of the present value of future
cash flows and the initial cash investment. Present value of future cash inflows
PI= Initial investment

Criteria of acceptance or rejection of a project:

• The project will be accepted if the value of the PI is greater than one.
• The project will be rejected if the value of PI is less than one.
• When the value of PI is equal to one, then the acceptance or rejection of a
project will be decided on the basis of priority or other contingent factors.

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8. FORMAT OF A PRELIMINARY PROJECT REPORT

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The PPR must adhere to the following structure: -

8.1. Title page

The title page is the first page of your article, and therefore it is important to
have a well-formatted title page that clearly represents your paper. This page
should include all the information necessary for a reader to identify the contents
of the article, its author(s), origin of the article, and the article type.

8.2. Introduction

The Introduction tells the reader what the report is about. It sets the project in its
wider context, and provides the background information the reader needs to
understand the report.

8.3. Terms of reference

(TOR) define the purpose and structures of a project, committee, meeting,

negotiation, or any similar collection of people who have agreed to work together
to accomplish a shared goal. Terms of reference show how the object in question
will be defined, developed, and verified.

8.4. Progress to date

It explains in detail how you far you've gone towards the completion of a project.
It outlines the activities you've carried out, the tasks you've completed, and the
milestones you've reached vis-à-vis your project plan

8.5. Work plans

A work plan is an outline of a set of goals and processes by which a team and/or
person can accomplish those goals, and offering the reader a better understanding
of the scope of the project. Through work plans, you break down a process into
small, achievable tasks and identify the things that has to be accomplished.

8.6. Appendices

Appendices should be cross-referenced from the main text as relevant. No

Appendix should be present unless cross-referenced from the main text.
The following should be provided as appendices:

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 • A copy of your Project Description Form,

• Any permission letters that give provenance for a work-based Project, or for
access to specific organizations or materials.

9. GUIDELINES BY PLANNING COMISSION FOR

FORMULATING THE PRELIMINARY PROJECT REPORT

9.1. General Information:

The feasibility report should include an analysis of the industry to which the
project belongs. It should deal with the past performance of the industry. The
description of the type of industry should also be given, i.e., the priority of the
industry, increase in production, role of the public sector, allocation of
investment of funds, choice of technique, etc. This should also contain
information about the enterprise submitting the feasibility report.

Preliminary Analysis of Alternatives:

This should contain present data on the gap between demand and supply for the
outputs which are to be produced, data on the capacity that would be available
from the projects that are in production or under implementation at the time the
report is prepared, a complete list of all existing plants in the industry, giving
their capacity and level of production actually attained, a list of all projects for
which letters of intents/ licenses have been issued and a list of proposed projects.

9.2. Project Description:

The feasibility should provide a brief description of the technology /process

chosen for the project. Information relevant to determining optimality of the
location chosen should also be included.

9.3. Marketing Plan:

A good marketing plan should contain the following items:

• Data on the marketing plan.

• Demand and prospective supply in each of the areas to be served.

• The method and data used for main estimates of domestic supply and selection
• of the market areas should be presented.

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• Estimates of the degree of price sensitivity should be presented.

• It should contain an analysis of past trends in prices.

9.4. Capital Requirements and Costs:

The estimates should be reasonably complete and properly estimated.
Information on all items of costs should be carefully collected and presented.

9.5. Operating Requirements and Costs:

Operating costs are essentially those costs which are incurred after the
commencement of commercial production. Information about all items of
operating cost should be collected.

9.6. Financial Analysis:

The purpose of this analysis is to present some measures to assess the financial
viability of the project. A proforma Balance Sheet for the project data should be
presented.

9.7. Economic Analysis:

Social profitability analysis needs some adjustment in the data relating to the
costs and returns to the enterprise. One important type of investment involves a
correction in input and costs, to reflect the true value of foreign exchange, labour
and capital.

9.8. Miscellaneous Aspects:

The preceding three areas are deemed appropriate to almost every new small
enterprise. Notwithstanding, depending upon the size of the operation and
peculiarities of a particular project, other items may be considered important to
be applied out in the project report.

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10. CONCLUSION

The depth and coverage of the above feasibility aspects could be planned in
accordance with the purpose of preparation of the report and the size of
investment in the project. In smaller projects one should attempt to prepare a
project report covering entrepreneurial capabilities, demand for the product,
managerial, technical and financial viability. It may not cost too much to the
entrepreneur and at the same time, it will serve the decide purpose.
In case of bigger project, the project report should contain all those details which
have been discussed in this report.

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CHAPTER 6: TO IDENTIFY THE VARIOUS SOURCES OF
FINANCE AND MANAGEMENT OF WORKING CAPITAL

1. INTRODUCTION

An entrepreneur is an individual who creates a new business, bears most of

the risks and enjoys most of the rewards. The process of setting up a business is
known as entrepreneurship. The entrepreneur is commonly seen as an
innovator- a source of new ideas, goods, services, and business/or procedures.
Entrepreneurship can be defined as the act of starting and running your own
business or a tendency to be creative and wish to work for yourself in your own
ventures. An example of entrepreneurship is a person who is running his own
business. By having an equity stake in the firm, the entrepreneur can enjoy a
great deal of profit if things go well; but they also take on a great deal of risk-
far more than a regular employee of the business. This entrepreneurial risk can
take several forms, including financial risk, career risk, emotional risk, or
overall business risk. Since there is so much at stake when it comes to starting
and growing a successful business, there are very specific skills that an
entrepreneur usually needs to be successful.
Lack of finance and working capital are the major challenge that an
entrepreneur can face. Sources of capital are the most explorable area
especially for the entrepreneurs who are about to start a new business. It is
perhaps the toughest part of all the efforts. Having known that there are many
alternatives to finance or capital, a company can choose from. Choosing the
right source and the right mix of finance is a key challenge for every finance
manager. The process of selecting the right source of finance involves in-depth
analysis of each and every source of fund. For analyzing and comparing the
sources, it needs the understanding of all the characteristics of the financing
sources. Management of working capital is also playing a great role in a
business.

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 This chapter provides an overview of the various sources from where funds can
be procured for starting as also for running and expand a business. And in the
last part we explain what is working capital management.

2. SOURCES OF FINANCE: -
2.1. Why Do We Need Sources of Finance?
Every enterprise, whether big, medium or small, needs finance to carry on its
operations and to achieve its targets. The need for funds arises from the stage
when an entrepreneur makes a decision to start a business.
For carrying out various activities, business requires money. Finance, therefore,
is called the life blood of any business. The requirements of funds by business
to carry out its various activities is called business finance.

A business cannot function unless adequate funds are made available to it. The
initial capital contributed by the entrepreneur is not always sufficient to take
care of all financial requirements of the business. A business person, therefore,
has to look for different other sources from where the need for funds can be
met. A clear assessment of the financial needs and the identification of various
sources of finance, therefore, is a significant aspect of running a business
organization.
Some funds are needed immediately say for the purchase of plant and
machinery, furniture, and other fixed assets. Similarly, some funds are required
for day-to-day operations, say to purchase raw materials, pay salaries to
employees, etc. Also, when the business expands, it needs funds.

2.2. CLASSIFICATION OF SOURCES OF FINANCE: -

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In case of company form of organization, the different sources of business
finance which are available may be categorized as:

89
 Also, the sources of finance are categorized into TWO types-

2.2.1. SOURCES OF FINANCE TO START UP A BUSINESS: -

1. PERSONAL INVESTMENT: -
When starting a business, your first investor should be yourself—either
with your own cash or with collateral on your assets. This proves to
investors and bankers that you have a long-term commitment to your
project and that you are ready to take risks.

2. LOVE MONEY: -
This is money loaned by a spouse, parents, family or friends. Investors
and bankers consider this as "patient capital", which is money that will
be repaid later as your business profits increase.

3. VENTURE CAPITAL: -
Venture capital funds invest in companies in exchange for equity in the
companies they invest in, which usually have a novel technology or
business model in high technology industries, such as biotechnology and
IT.

90
4. ANGELS: -
Angels are generally wealthy individuals or retired company
executives who invest directly in small firms owned by others. Apart
from funds, Angels invest their time, experience, network and energy
in business they invest in. Sanjay Mehta, an Angel Investor has
invested in several startups viz., OYO Rooms, FabAlley,
OrangeScape etc.

SANJAY MEHTA

5. BUSINESS INCUBATORS: -
Business incubators generally focus on the high-tech sector by
providing support for new businesses in various stages of
development. However, there are also local economic development
incubators, which are focused on areas such as job creation,
revitalization and hosting and sharing services. For example, The
Amity Innovation Incubator, an incubator might share the use of
its laboratories so that a new business can develop and test its
products more cheaply before beginning production.
6. GOVERNMENT GRANTS AND SUBSIDIES: -
Government agencies provide financing such as grants and subsidies
that may be available to your business. The Canada Business
Network website provides a comprehensive listing of various
government programs at the federal and provincial level. Also, R&D
funding, From the perspective of funding, R&D funds pay for either
the costs of R&D
performance within the
statistical unit (intramural) or the
costs of R&D performance
outside of the statistical unit
(extramural).
7. BANK LOANS: -
Bank loans are the most
commonly used source of

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 funding for small and medium-sized businesses. Many industrial
development banks, cooperative banks and commercial banks grant
medium term loans for a period of 3-5 years for supporting the long-
term capital investments by the company viz., purchase of Fixed
Assets, expansion.

2.2.2. SOURCES OF FINANCE TO RUN AND EXPAND THE

BUSINESS: -

1. SOURCES OF FINANCE BASED ON BASIC SOURCES: -

❖ INTERNAL SOURCES: - Internal sources of funds are those that are

generated from within the business. A business, for example, can
generate funds internally by accelerating collection of receivables,
disposing of surplus inventories and ploughing back its profit. The
internal sources of funds can fulfill only limited needs of the business.

❖ EXTERNAL SOURCES: -
External sources of funds include those sources that lie outside an
organization, such as suppliers, lenders, and investors. When large
amount of money is required to be raised, it is generally done through
the use of external sources. External funds may be costly as compared to
those raised through internal sources. In some cases, business is required
to mortgage its assets as security while obtaining funds from external
sources. Issue of debentures, borrowing from commercial banks and
financial institutions and accepting public deposits are some of the

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 examples of external sources of funds commonly used by business
organizations.

2. SOURCES OF FINANCE BASED ON MATURITY OF

PAYMENT: -

i. SHORT-TERM FINANCE: -
Short Term Business Finance are required to meet its day-to-day
expenses. The purpose of short-term business finance is Purchase of raw
material Paying wages to workers Payment of water and electricity
charges. Repayment period is less than 1 year. For example, stocks
debtors like haulage company who borrows money from a bank to
invest in a new fleet of vehicles etc.

ii. MEDIUM-TERM FINANCE: -

Medium-term loans are loans with a repayment period between two and
five years. All funds needed for meeting the defined revenue
expenditures like expenses on heavy publicity and advertisement
campaigns. For Example, differed revenue expenditure, Special projects,
Working capital for Special orders etc.

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 iii. LONG-TERM FINANCE: -
Long-term financial requirements, which are for a period exceeding five
to ten years. All funds to be invested in various types of fixed assets. For
Example, All investment in plant and machinery and permanent and
hardcore working capital.

2.3. FINAN
CIA L AID
BY
CENTRAL/
STATE
GOVERNM
ENT: -
The
governm
ent has
established a number of financial institutions all over the country to provide
finance to business organizations. These institutions are established by the
central as well as state governments. They provide both owned capital and loan
capital for long- and medium-term requirements and supplement the traditional
financial agencies like commercial banks. As these institutions aim at promoting
the industrial development of a country, these are also called development banks.
In addition to providing financial assistance, these institutions also conduct
market surveys and provide technical assistance and managerial services to
people who run the enterprises.
This source of financing is considered suitable when large funds for longer
duration are required for expansion, reorganization and modernization of an
enterprise. For example,
▪ EXPORT – IMPORT BANK OF INDIA (EXIM BANK): -
The Export-Import Bank of India was established in 1982 to promote
and finance India's international trade. It is the principal financial
institution of India's trade.
The main function of the Export and Import Bank of India is to provide
financial and other assistance to importers and exporters of the
country. And it oversees and coordinates the working of other
institutions that work in the import-export sector.

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▪ KHADI & VILLAGE INDUSTRIES COMMISSION (KVIC):
-
The KVIC is a government agency which is engaged in the development
of village and khadi industries in rural areas. Its main objective is to
provide employment to rural youth and improve rural skills.
Under the PMEGP scheme, the Khadi and Village Industries
Commission (KVIC) act as the nodal agency at nationwide for
implementation of the scheme.

▪ NATIONAL SMALL INDUSTRIES CORPORATION LTD

(NSIC): -
The Small Industries Development Corporation was established in 1955
under the Ministry of Commerce and Industry to promote and develop
small and medium enterprises in India. National Small Industries
Corporation (NSIC), is an ISO 9001:2015 certified Government of India
Enterprise under Ministry of Micro, Small and Medium Enterprises
(MSME). NSIC has
been working to promote,
aid and foster the growth
of micro, small and
medium enterprises in the
country.

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 ▪ STATE INDUSTRIAL DEVELOPMENT CORPORATIONS
(SIDCS): -
It was first established in 1995 under the Companies Act, 1956. They
are state-owned government corporations that engage in the
development and promotion of medium and large industries. The main
objective of the corporation is promotion of industries rather than
granting of finance. To Promote skilled labor through the setting up of
industrial training institutes.

▪ SMALL INDUSTRIES DEVELOPMENT CORPORATIONS

(SIDCS): -
Small Industries Development corporation is a subordinate office of the
Department of SSI & Auxiliary and Rural Industry (ARI). It is an apex
body and nodal agency for formulating, coordinating and
monitoring the policies and programs for promotion and
development of small-scale industries. Established under Companies
Act, 1956 and are responsible for catering to the needs of the small, tiny
and cottage industries in the State/Union Territories under their
justification.

1. MANAGEMENT OF WORKING CAPITAL

The term ‘working capital management’ primarily refers to the efforts of the
management towards effective management of current assets and current
liabilities. Working capital is nothing but the difference between the current
assets and current liabilities. In other words, an efficient working capital
management means ensuring sufficient liquidity in the business to be able to
satisfy short-term expenses and debts. Working capital management requires
monitoring a company's assets and liabilities to maintain sufficient cash flow to
meet its short-term operating costs and short-term debt obligations. Working
capital management involves tracking various ratios including the working capital
ratio, the collection ratio, and the inventory ratio. Working capital management
can improve a company's earnings and profitability through efficient use of its
resources.
Analysis of past performance, planning for future activities, and control of current
activity are the three basic factors for the effective financial management.

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1.1. MEANING AND CONCEPT OF WORKING CAPITAL: -
In accounting term working capital is the difference between current assets and
current liabilities. If we break down the components of working capital, we will
be found working capital as follows:
Working Capital=Current Assts – Current Liabilities
Current Assets: An asset is classified as current when:
a) It is expected to be realized or intends to be sold or consumed in normal
operating cycle of the entity.
b) The asset is held primarily for the purpose of trading.
c) It is expected to be realized within twelve months after the reporting
period.
d) It is non- restricted cash or cash equivalent.
Generally current assets of an entity, for the purpose of working capital
management can be grouped into the following main heads:
• Inventory (raw material, work in process and finished goods)
• Receivables (trade receivables and bills receivables)
• Cash or cash equivalents (short-term marketable securities)
• Prepaid expenses
Current Liabilities: A liability is classified as current when:
a) It is expected to be settled in normal operating cycle of the entity.
b) The liability is held primarily for the purpose of trading
c) It is expected to be settled within twelve months after the reporting
period
Generally current liabilities of an entity, for the purpose of working capital
management can be grouped into the following main heads:
• Payable (trade payables and bills receivables)
• Outstanding payments (wages & salary etc.)

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 In general Working capital management is essentially managing Current
Assets.
Management of working capital arises as a part of the process of such
management.

1.2. SIGNIFICANCE OF MANAGEMENT OF WORKING CAPITAL: -

Management of working capital is an essential task of the finance manager. He
has to ensure that the amount of working capital available is neither too large nor
too small for its requirements.
A large amount of working capital would mean that the company has idle funds.
Since funds have a cost, the company has to pay huge amount as interest on such
funds. If the firm has inadequate working capital, such firm runs the risk of
insolvency. Paucity of working capital may lead to a situation where the firm may
not be able to meet its liabilities.
One of the reasons for the poor performance of public sector undertakings in our
country has been the large amount of funds locked up in working capital. This
results in over capitalization. Over capitalization implies that a company has too
large funds for its requirements, resulting in a low rate of return, a situation which
implies a less than optimal use of resources. A firm, therefore, has to be very
careful in estimating its working capital requirements.
Maintaining adequate working capital is not just important in the short-term.
Sufficient liquidity must be maintained in order to ensure the survival of the
business in the long-term as well. When businesses make investment decisions,
they must not only consider the financial outlay involved with acquiring the new
machine or the new building, etc., but must also take account of the additional
current assets that are usually required with any expansion of activity. For eg.: -
• Increased production leads to holding of additional stocks of raw materials
and work-in-progress.
• An increased sale usually means that the level of debtors will increase.
• A general increase in the firm’s scale of operations tends to imply a need
for greater levels of working capital.

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 A question then arises, what is an optimum amount of working capital for a firm?
We can say that a firm should neither have too high an amount of working capital
nor should the same be too low. It is the job of the finance manager to estimate the
requirements of working capital carefully and determine the optimum level of
investment in working capital.

1.3. DETERMINANTS OF MANAGEMENT OF WORKING CAPITAL: -

Working capital management is concerned with: -

• Maintaining adequate working capital (management of the level of
individual current assets and the current liabilities) and
• Financing of the working capital.
For the point a) above, a Finance Manager needs to plan and compute the working
capital requirement for its business. And once the requirement has been computed
he needs to ensure that it is financed properly. This whole exercise is nothing but
Working Capital Management. Sound financial and statistical techniques,
supported by judgment should be used to predict the quantum of working capital
required at different times.
Some of the factors which need to be considered while planning for working
capital requirement are: -
1. Cash – Identify the cash balance which allows for the business to meet day-
to-day expenses, but reduces cash holding costs.
2. Inventory – Identify the level of inventory which allows for uninterrupted
production but reduces the investment in raw materials and hence increases
cash flow; the techniques like Just in Time (JIT) and Economic order quantity
(EOQ) are used for this.
3. Receivables – Identify the appropriate credit policy, i.e., credit terms which
will attract customers, such that any impact on cash flows and the cash
conversion cycle will be offset by increased revenue and hence Return on
Capital (or vice versa). The tools like Discounts and allowances are used for
this.
4. Short-term Financing Options – Inventory is ideally financed by credit
granted by the supplier; dependent on the cash conversion cycle, it may
however, be necessary to utilize a bank loan (or overdraft), or to “convert
debtors to cash” through “factoring” in order to finance working capital
requirements.

1.4. WORKING CAPITAL CYCLE: -

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 The working capital cycle measures the time between paying for goods to you
and the final receipt of cash to you from the sale. It is desirable to keep the cycle
as short as possible as it increases the effectiveness of working capital. The
determination of working capital cycle helps in forecast, control and
management of working capital. The duration of working capital may vary
depending upon the nature of business. The working capital cycle is made up of
three core components; cash management, inventory management, debtors
management. The duration of working capital cycle for the purpose of estimating
working capital is equal to the sum of duration of each event less the credit
period allowed by the supplier.

1.5. TYPES OF WORKING CAPITAL MANAGEMENT: -

Working capital management are divided into 3 types

3.5.1 INVENTORY MANAGEMENT

1. DEFINITION: - Inventory management consist of process of ordering,
storing and using a company’s inventory. The components of inventories are
raw materials, components, finished products etc. Inventories constitute a
major element of working capital; it is therefore important that investment in
inventory is properly managed. The process of Inventory management consists
of determining, how to order products and how much to order as well as
identifying the most effective source of supply for each item in each stocking
location. Inventory management contains all activities of planning, forecasting
and replenishment. The main purpose of inventory management is to minimize
differences between customers demand and availability of items.
Nowadays, conducting a proper inventory management becomes hard without
the use of management software made for inventories. Such software helps
speed up the inventory management as well as procuring and tracking different
items being delivered. Moreover, they allow to manage everything related to
your business in a single place, whilst eliminating manual paperwork and
sifting through spreadsheets.

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2. OBJECTIVE OF INVENTORY MANAGEMENT: -
1) The operational objective is to uphold enough inventory, to meet
demand for product by efficiently organizing the firm's production and
sales operations.
2) Financial interpretation is to minimize unproductive inventory and
carrying costs.
3. MODERN TECHNOLOGIES IN INVENTORY
MANAGEMENT:
Today’s inventory management technology helps decision-makers
understand how their inventory is performing as it moves through the
distribution chain. With the ability to identify patterns, track shipments, and
fulfil orders efficiently, companies can improve their growth potential,
reduce risk, and enable new efficiencies that satisfy all stakeholders, from
the factory floor to the customer’s door.

• INVENTORY SOFTWARE:
No matter what industry you operate in, reliable inventory software is
crucial to your process. From the simplest iterations to the most complex,
your inventory software should give you a view of your stock at a glance
while monitoring incoming items, sales, pricing, cost, expiration dates,
distribution channels, shrink, and more.
The most advanced versions of inventory tracking software will count your
items independently. It will also alert you to any anomalies, and the best in
class will even help you make predictions for the future and optimize
distribution across multiple channels.
• RFID TAGS AND IOT SENSORS:
RFID technology improves inventory accuracy by 98 percent or more,
reducing costs and improving efficiency from end-to-end while enabling
automated processes and creating new efficiencies that drive profits.
Generally, inventory counts are done on a periodic basis, either monthly,
weekly, or however it seems most appropriate given the use case. RFID tags
and IoT sensors work together to simplify the inventory process, enabling

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 accurate counts in an instant, eliminating errors, and allowing you to
reallocate your human capital to higher-value tasks.

3.5.2 RECIEVABLE MANAGEMENT

1. RECIEVABLE: - Accounts receivable are revenues due, what customers
and debtors owe to a company for past sales. When company sells its
products, services on credit, and it does not receive cash for it immediately,
but would be collected in near future, it is termed as receivables. A company
must collect its receivables in a timely manner so that it can use those funds
to meet its own debts and operational costs. Accounts receivable appear as
assets on a company's balance sheet, but they do not become assets until they
are collected. Day’s sales outstanding is a metric used by analysts to assess a
company's handling of accounts receivables. The metric reveals the average
number of days a company takes to collect sales revenues.

2. OBJECTIVE OF MANAGEMENT OF RECEIVABLES: -The

basic objective of management of receivables is to optimize the return on
investment on these assets. If Large amounts are tied up in receivables, then
there are chances of bad debts and there will be cost of collection of debts.
On the contrary, if the investment in receivables is low, the sales may be
restricted, since the competitors may offer more liberal terms.
3. STRATEGIES TO MANAGE RECEIVABLES: - There are different
strategies used for managing receivables in an organization or a company. It
includes: -

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 • RECEIVABLES SHOULD NOT BE LEFT UNCOLLECTED
FOR LONGER
Monitoring past due receivables is crucial because acting quickly on such
accounts can help recover full or at least partial payment. Receivables that
remain uncollected for the first thirty days from the due date are less
likely to be recovered.
The person-in-charge of monitoring and processing accounts receivables
should ensure that he or she contacts the client immediately on the next
day after the due date in case of a missing payment. It is advisable to
remind the client that they may need to pay a late fee. Let someone from
the accounts receivable team have an open conversation with the client.
Let them elaborate on the reasons behind the delay. The step can help in
forming a strong relationship with the customer. If a considerable number
of days have passed after the due date, the team should start sending
firmer communication. Sending letters and emails concerning possible
legal action for failing to make payment by the set deadline can help.
• USE EARLY PAYMENT DISCOUNT AS A MOTIVATION
FACTOR: -
Early payment from clients can help in boosting the cash flow. Thus,
offering a small discount on prompt bill payments can be a good idea.
However, if the business works on a tight margin, even a small discount
of one or two percent can be a lot of money. It is advisable to ensure
offering a discount on each bill payment is a viable option for the business
or not.

• TIMELY INVOICING AND LATE FEES: -

Delayed payments can create more problems for small firms with limited
cash flow. So, timely invoicing remains crucial for staying afloat.
Charging a late fee on payments made after the due date can help in
deterring consumers who intentionally make late payments as a part of
their accounting policy.

3.5.3 PAYABLES MANAGEMENT

DEFINITION: -
Accounts payable is the amount that a company must pay out over the short
term and is a key component of working capital management. Companies
endeavor to balance payments with receivables to maintain maximum cash
flow. Companies may delay payments as long as is reasonably possible with
the goal of maintaining positive credit ratings while sustaining good

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 relationships with suppliers and creditors. Ideally, a company's average time to
collect receivables is significantly shorter than its average time to settle
payables.
Amount Payables is an important figure in a company's balance sheet. If
Amount Payables increases over a prior period, that means the company is
buying more goods or services on credit, rather than paying cash. If a
company's Amount Payables decreases, it means the company is paying on its
prior period debts at a faster rate than it is purchasing new items on credit.

1.6. PRINCIPLES OF WORKING CAPITAL MANAGEMENT: -

Mainly there are four principles of working capital management. They are;
• PRINCIPLE OF RISK VARIATION
• PRINCIPLE OF COST OF CAPITAL
• PRINCIPLE OF EQUITY POSITION
• PRINCIPLE OF MATURITY PAYMENT
3.6.1. PRINCIPLE OF RISK VARIATION: -
This principle helps to determine the relationship between risk and profitability
associated with the working capital management. Here risk means the inability
of a firm to pay its obligations. working capital and risk are inversely
proportional to each other.as the working capital decreases, firm assume more
risk and the opportunity for gain or loss increases.
3.6.2. PRINCIPLE OF COST OF CAPITAL: -
This principle states that different sources of finance have different cost of
capital. It helps to find the relationship between cost of capital and degree of
risk and it says that cost of capital is inversely proportional to risk. Thus, the
additional risk capital result in decline in the cost of capital.
3.6.3. PRINCIPLE OF EQUITY POSITION: -

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 This principle helps in deciding whether to invest in current assets or not. The
investment in current assets would decrease the working capital of
organization. According to this principle the amount of working capital
invested in each component should be adequately justified by a firm’s equity
position. That means every rupee invested in the working capital should
contribute to the net worth of the firm.
3.6.4. PRINCIPLE OF MATURITY PAYMENT: -
This principle states that the organization should frame its policies in such a
way so that it’s cash inflow would be sufficient to meet its cash outflow. This
facilitates the timely payment of short-term debts, which in turn enhance the
goodness and credit worthiness of an organization.
1.7. FACTORS INFLUENCING WORKING CAPITAL
MANAGEMENT: -
• NATURE OF BUSINESS:
Public utility services need less working capital since they offer cash sales
only, but have more investment in fixed asset. But in case of Trading and
industrial concerns require more investment in working capital.

• CONDITION OF SUPPLY:
If the supply of inventory is prompt and adequate, less funds will be needed,
but if the supply is seasonal more investment needed.

• PRODUCTION POLICY:
Production could be low during slack season and increase in peak season.
So, in order to avoid this variation in working captial, sales department may
follow a policy of off-season discount. Thus, sales and production can be
distributed steady throughout the year.
• SEASONAL OPERATION:
Companies selling seasonal goods require huge amount during season as
more demand. Whereas very low demand during off season, so less working
capital is required.

• CREDIT AVAILABILITY:
If materials and other inputs are early available on credit with favorable
terms and conditions, less working capital will be needed otherwise more
amount of working capital needed to avoid risk.

• CREDIT POLICY:

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 If the most of the sale is at cash, even though it received in credit requires
less working capital. If sale is at credit and payment received late, more
capital is needed. The enterprise should follow a rationalized credit policy.

• GROWTH AND EXPANSION:

Enterprise planning to expand activities, rewire more working capital.as for
expansion, they need to increase sale of production

• PRICE LEVEL CHANGE:

Rise in price will require the enterprise to maintain large amount of working
capital, as more amount is required to maintain the same current assets.
• CIRCULATION OF WORKING CAPITAL:
Less working capital will be needed with the increase in circulation of
working capital and vice versa. working capital cycle starts with purchase of
raw material, then raw material to working progress, working progress to
finished goods, finished good to account receivable, account receivable to
cash.

• VOLUME OF SALE:
With the increase in sales more working capital needed for finished goods
and debtors, and vice-versa.

• LIQUIDITY AND PROFITABILITY:

When working capital in relation to sales increased, it will reduce risk and
profitability, and increase liquidity. i.e., negative relationship between
probability and liquidity.

• MANAGEMENT ABILITY:
Proper management in production and distribution may reduce requirement
of working capital, as minimum amount will be invested in absolute
inventory, non-inventory debt.

• EXTERNAL ENVIRONMENT:
With development of financial institution, transport facility etc. Need of
working capital is reduced.

4. CONCLUSION
Business is concerned with the production and distribution of goods and services
for the satisfaction of needs of society. Finance is the lifeblood of business concern,
because it is interlinked with all activities performed by the business concern. All
businesses require funding for their activities. A business should match the source

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of finance toits specific use in practice this means that a business should secure
long-term sources of finance for long term uses or needs and for more short-term
finance immediate needs. Working capital is money tied up in the business and
used to finance its day-to-day needs, such as buying raw materials. All businesses
have a working capital cycle that identifies how this money moves around the
business. A possible source of finance is squeezing or reducing our own working
capital needs. Therefore, the cash we need is more efficiently used. Thus, for a
successful business various sources of finance are needed and efficient
management of working capital is very important.
§

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CHAPTER 7: CARRYING OUT THE COSTING AND BREAK-
EVEN ANALYSIS OF A PROPOSED PROJECT

1. INTRODUCTION
Entrepreneurship is the capacity and willingness to develop, organize and manage
a business venture along with any of its risks in order to make a profit. In
economics, entrepreneurship combined with land, labour, natural resources and
capital can produce profit. Project Report is a written document that contains
data on the basis of which the project has been appraised and found feasible. It
consists of information on economic, technical, financial, managerial and
production aspects. It enables the entrepreneur to know the inputs and helps him
to obtain loans from banks or financial Institutions. Costing and Break-Even
Analysis is an important part of a project report.

Costing is defined as the techniques and process of ascertaining cost. It involves

systems, methods, classification, analysis and appropriate allocation of
expenditure incurred. Costing is the process of computation of the cost of
manufacturing a product or service.

Entrepreneurs are people who strive to establish a business through considerable

risk and initiative. In order to succeed, entrepreneurs must minimize the risk of
failure through effective planning and research long before they launch their
business.

The selling price of a product in order to arrive at the sales quantity required to
break even. Break- even analysis refers to a system of analysis that can be used to
determine the probable profit at any level of activity.

2. COSTING
“The technique and process of ascertaining costs.” Or simply elaborating, costing is
the process of collecting information about the cost incurred by the company's
activity, assigning selected costs to products and services and other cost objects and
evaluating the efficiency of cost usage. Costing is mostly concerned with
developing and understanding where a company earns and losing money. And
providing input into decisions to generate profits in the future

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Costing is typically used to develop costs for like
* Customers
* Distribution channels
* Employees
* Products
* Product lines
* Processes
* Subsidiaries or even
* Entire companies

2.1 Aims of cost accounting

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● Elimination of Wastes, Losses and Inefficiencies
A good cost accounting system eliminates wastes, losses and inefficiencies by
fixing standards for everything.
● Cost Reduction
New and improved methods of production are followed under the cost
accounting system. It leads to cost reduction.

● Identify the reasons for Profit or Loss

A good cost accounting system highlights the reasons for increasing or
decreasing profit. If so, take remedial action to maintain profitability of the
concern. There is no possibility of shutting down any product or process or
department.

● Advise on Make or Buy Decision

On the basis of cost information, the management can decide whether to make or
buy a product in the open market. The management can rightly choose the best
out of many alternatives. Sometimes, spare capacity can be used profitably.

● Price Fixation
The total cost of a product is available in the costing records. It is highly useful
for price fixation of a product.

● Cost Control
Budgets are prepared and standards are fixed under the cost accounting system.
The expenses are not permitted beyond the budget amount. The actual
performance is compared with standard to find the variation. If there is any
variation, reasons are found and the management can exercise control. Period to
period cost comparison also helps cost control.

● Assist the Government

Government can collect reasonable tax from the company and exercise price
control.

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 ● Help the Trade Union
Bonus calculation is very easy to the trade union. Reasonable remuneration is
also fixed on the basis of cost accounting information.

● Marginal Analysis of Cost:

It is done for facilitating short-term decisions especially during depression
period.

● Fixation of Responsibility
Responsibility centers are fixed under the cost accounting system. If
responsibility is fixed, it becomes difficult to evade responsibility of
performance and leads to effective performance.

● Helps to Prepare Financial Accounts

Information like the value of closing materials, work in progress and finished
goods are necessary to prepare financial accounts. This information is supplied
by the costing records and helps to prepare financial accounts without any
further delay.

● Prevention of Frauds
Introducing cost audit can prevent frauds. If so, correct and reliable data was
available from the costing records which are highly useful to the government,
shareholders, the creditors and the like.

2.2 Costing Methods:

Costing method to be followed in a particular enterprise depends upon:

(i) Nature of Industry,
(ii) Class of products manufactured,
(iii) Quantity of goods produced, and
(iv) The way the workers are employed and paid.

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2.3 Limitations of Cost Accounting

The limitations or disadvantages of cost accounting are listed below:

• The system is very complex and also expensive

• Not suitable for small scale units
• Not useful for determining the tax liabilities etc.

1. Only past performances are available in the costing records but the
management is taking decisions for the future.

2. The cost of the previous year is not the same in the succeeding year. Hence,
cost data is not highly useful.

3. The cost is ascertained on the basis of full utilization of capacity. If capacity is

partly utilized, the cost may not be true.

4. Financial character expenses are not included for cost calculation. Hence, the
calculated cost is not always correct.

5. In cost accounting, costs are absorbed at a predetermined rate. It leads to over

absorption or under absorption of overheads.

6. Cost Accounting fails to solve the problems relating to work study, time and
motion study and operation research.
7. Delay in receiving costing information does not result in taking quality
decisions by the management.

8. Rigid Cost Accounting System does not serve all purposes.

3. Following may be considered to be the important methods of

costing:

• Multiple Costs: Concerns manufacturing a variety of standardized products,

having no relation to one another in cost, and the types or process etc. such as
type-writer, gramophones and cycles, use this costing method.

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 • Job Cost: This method is also known as “order costs” or “terminal costs”. In
this method all the items are charged to a specific order. This method is also
adopted by builders, contractors etc. as it helps in showing the cost of each
contract or job or order of a work.

• Departmental costing: This method is adopted in estimating the cost of output

of each department separately for the manufacture of standardized products.
For example, in a steel mill there are three separate departments such as blast
furnace, open hearth and rolling mill department. The cost of all the three is
determined separately.

• Unit Costs: This method is adopted by the firms, which supply a uniform
product rather than a variety of products such as mines, quarries etc.

• Process Costs: This method is applied to industries such as oil refining,

chemical, paint and other similar industries, where the raw material passes
through a number of processes or operations before it is converted into a final
product. In this method of costing, by-products should be taken into account
while calculating the cost of each process of manufacture.

• Operating Costs: Firms providing utility services find this method useful. For
example, in railway, transport service, water works, electricity boards etc., cost
is determined on the basis of operating expenses and charges are made as
tonne-km or passenger per km, per 1000 liters and kilowatt-hour respectively.

3.1. Elements of cost:

The analysis and classification of costs is basically made with reference to factors on
which expenditure is incurred. These factors are known as ‘elements of cost’.
‘Element’ may also be defined as a group name of smaller costs of identical nature. A
cost is composed of three elements – Material, Labour and Expenses. Each of these
three elements can be direct and indirect.

Material cost: This refers to the cost of all the materials which are consumed in the
process of production of a product.

a) Direct materials: It is the cost of material which can be clearly traced and
identified in the product or cost unit.eg:

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 ● All material or components specifically purchased, produced or
requisitioned from stores material, constructional material etc.
● Primary packing material (e.g., cartoon, wrapping, cardboard, boxes etc.).
● Purchased or partly produced components.

Direct material is also described as raw-material, process material, prime

material, production.

b) Indirect materials: Are those materials which cannot be identified to a specific

product. Examples- Grease or lubricants used in machines, chemicals used as
catalysts, cotton waste used in the maintenance of machines, small tools and
components used, stationery used in the office, finishing materials used in
jewellery etc.

Labour cost: It is the remuneration like wages, salaries, commission, bonus & all
other incentives paid to different types of employees in a business.

a) Direct labour cost: It is the cost of labour directly engaged in production

operations. Examples of direct labour cost- wages paid to construction labours
in a construction, a weaver weaving cloth, a mechanic operating machines,
carpenter making furniture and goldsmith making jewelry.

b) Indirect labour cost: It is the remuneration paid for labour engaged to help the
production operations. Examples of indirect labour cost – remuneration paid to
employees in the personal department, employees in the accounts department,
employees in the security department, employees in the stores, general
supervisor.

Expenses: Expenses refers to all costs other than materials cost & labour cost.

a) Direct Expenses: Are those which can be identified with and allocated to cost
centers or cost units. e.g.:
● Rental of a machine or plant hired for a specific job.

● The cost of making a specific pattern, design, drawing or making tools for a
job.

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 ● The costs of making experiments, models and conducting pilot schemes.

● Fees of architects, surveyors and consultants.

● Expenses on travelling and other incidental expenses incurred in connection

with a specific job.

● Carriage inwards, freight and insurance on procuring direct materials,

● The costs of primary packing materials.

● The costs of patents, amount of royalty and license fees incurred or paid in
connection with a specific job.

b) Indirect Expenses: Expenses which cannot be allocated but can be absorbed by

cost centers or cost units. For example:

● Rent, rates and insurance in relation to factory

● Depreciation, repairs, maintenance on factory building, plant etc.

● Welfare and medical expenses

● Expenses of the service department such as tool-room, boiler-house,

drawing-office, production and planning center.

● Cost of training for new employees.

3.2 Relationship between Elements of Cost and Determination of

Selling Price

The various components of cost can be shown by means of the following diagram
known as ladder of cost.

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a) Prime Cost: Prime cost is the sum of direct material costs, direct labour costs
and direct expenses. It is also known as Basic, First or Flat Cost.

Prime Cost = Direct Material Cost + Direct Wages + Direct Expenses

b) Factory Cost: This comprises Prime Cost and factory or works overheads
which include costs of indirect material, indirect labour and indirect factory
expenses. This cost is also known as Works Cost, Production Cost or
Manufacturing Cost.

Factory Cost = Prime Cost + Factory Overhead

c) Office Cost: Office cost includes Factory Cost and office and administration
overheads; this is also termed Cost of Production.

Manufacturing Cost = Factory Cost + Administrative expenses

d) Total Cost: This is the sum of the Cost of Production and selling and
distribution overheads. It is also termed Cost of Sales.

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 Total Cost = Manufacturing Cost + Selling and Distribution Expense

e) Selling Price: Selling price is not the same thing as selling cost. Selling price is
the Selling Cost (or Total Cost or Cost of Sales) plus profit.

Total Cost + Profit = Selling Price

3.3 Types of Costs: -

1) Fixed cost:
• Are those costs which remain fixed or constant at any level of activity or
up to a given range of activity.
• Depends upon the passage of time and does not vary directly with the
volume of output.
• Examples: Rent of business premises, Insurance, Salary of executives,
like general manager, works manager, managing director, Taxes.

2) Variable cost:
• Part of total cost which tends to vary directly with variation in the volume
of output.
• It varies in direct proportion to the volume of production.
• Examples: Cost of direct materials, direct labour cost.

3) Semi – variable cost:

• Partly fixed and partly variable
• Varies at certain levels and remain fixed at other level of activity.
• It is possible to determine the amount of fixed cost and the rate of
variation of variable elements.

4. How much does it cost to launch a new start up?

Steps to calculate start-up costs:
● Identify your milestones. To determine the major milestones for your
company, you need to assess where you are and where you want to be. You
can’t begin to identify your costs until you know what you want to accomplish.
What are the important milestones for your company to achieve? Some
possible milestones could be to get out a better product, get a first product or
gain a solid understanding of your market. Try to create discrete milestones
rather than bundle them together.

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 ● Determine what you need to do to accomplish your milestones. Once you
have identified your milestones, you need to think about the resources
necessary to hit these milestones. Consider the following costs:
● Human resources. This is often the greatest start up expense. Figure out who
you will need to build your company, then calculate their projected salaries and
wages (depending on whether you hire employees or outsource). Remember to
include recruiting, benefits, taxes and other related HR costs.
● Operational costs. These are the day-to-day costs of keeping your business
running, including such things as your Internet service and office supplies, and
other inventory and as an accountant or attorney. Also consider what permits
equipment expenses.
● Professional services. You’ll need to include costs for essential professional
services, such as licenses you may need.
● Facilities. Determine what, if anything, you will need in terms of facilities or
office space.
● Marketing. Your company won’t be very successful if nobody’s heard of it!
● Consider funding sources. Next you need to determine if you are going to
bootstrap the entity or if you want to raise funds. To do this, calculate your
burn rate (the amount of capital you will go through every month), using your
total expense calculation. If you realize that you'll need to raise money to cover
your monthly costs, decide what potential funding source you're going to
target: friends and families, angel investors or venture capitalists.
● Establish your funding goal. There are pros and cons to each funding source,
but there is no right source for all companies. It depends on your company
niche, what stage your company is in and what else you're looking for—and
not looking for—in a funding partner. And, of course, it depends on how much
money you need. You may think more money is better, but this is actually a
mistake. Use your expense calculations as a baseline for how much funding
you will need. Add in a bit of a cushion, since it’s common for start-ups to
underestimate their cost—but don’t add in too much. Raising what you need
(and no more) is called capital efficiency—and it’s a much more telling
indicator than capital access of your company’s success.
● Balance your milestones against your funds. Once you have determined
what you need to hit your milestones, you need to go back and balance that
against your funds. Balance your way between what you can do and what you
can afford in order to reach each milestone. This isn’t a one-time process;
you’ll find yourself constantly dancing between these two points.

5. BREAK-EVEN ANALYSIS

A break-even analysis is a financial tool which helps a company to determine the

stage at which the company, or a new service or a product, will be profitable. In
other words, it is a financial calculation for determining the number of products or

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 services a company should sell or provide to cover its costs (particularly fixed
costs).

5.1 What is a Break-Even Analysis?

Break-even is a situation where an organization is neither making money nor

losing money, but all the costs have been covered. Break-even analysis is useful in
studying the relation between the variable cost, fixed cost and revenue. Generally,
a company with low fixed costs will have a low break-even point of sale. For
example, say Happy Ltd has fixed costs of Rs. 10,000 vs Sad Ltd has fixed costs
of Rs. 1,00,000 selling similar products, Happy Ltd will be able to break-even
with the sale of lesser products as compared to Sad Ltd.

5.2 Calculation of Break-Even Analysis

The basic formula for break-even analysis is derived by dividing the total fixed
costs of production by the contribution per unit (price per unit less the variable
costs).

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6 BREAK EVEN CHART

• It is the graphical representation of the relation between cost and revenue at a

given time.
● In 1930’s Walter Rautenstrauc, an industrial engineer and professor of
Columbia University, invented the planning device known as breakeven chart
● It was one of the first synthetic tools that became available to production
management and management accountancy.
● Modifications of the breakeven chart that introduce risk make it an even more
useful tool for the synthesis of the production management field.

6.1 Functions:

➢ A breakeven chart is an aid to management and it depicts a clearer view of the

position of a business.
➢ It is one of the most useful graphic presentations of accounting data.
➢ It is a graphic presentation of an economy rather than an accounting concept.
➢ It portrays likely profit or loses at various output levels.
➢ It depicts the relationship between marginal cost and fixed cost.
➢ It marks no profit no loss situation
➢ It portrays margin of safety
➢ It can help make specific plans to affect profit through the control of expenses.
➢ It can be nicely sum up the impact of alternative decisions on costs and profits.

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6.2 Uses of Break-Even Chart
(i) Useful graphical presentation of accounting data
(ii) Predicts profit and loss at various output levels
(iii) Talks about margin of safety

6.3 PLOTTING THE BREAK - EVEN CHART

1) The breakeven chart consists of y-axis which representing total cost and total
revenue.
2) An x-axis representing units of output or sales volume or number of units
produced.
3) First straight horizontal line representing fixed costs function fixed cost doesn’t
change with the increase of sales volume.
4) Next line represents the total cost which is increasing linear it is a monotonic
function that increase with the increase in volume of production
Total Cost Result = Fixed Cost + Variable Cost
5) Line c represents sales revenue line or total sales this line shows the income at
varying levels of output and sales income line passes through the origin.
6) The point of intersection of the sales income line and the total cost line
represents the break-even points.
7) The shaded area between the total cost line and the sales income line on the
right-hand side of BEP shows profit.

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6.4 BREAK EVEN POINT

The breakeven point may be defined as the point of sales volume at which total
revenue is equal to total cost .it is a point of no profit, no loss.
Total Sales = Total Cost
This point is also known as critical point or equilibrium point or no profit no loss.
If the production is increased beyond this level there will be profit to the organization
and if decreased then there shall be loss.

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6.5 USES OF BREAK-EVEN POINT
➢ Helpful in deciding the minimum quantity of sales
➢ Helpful in the determination of tender price.
➢ Helpful in examining effects upon organization ‘s profitability
➢ Helpful in deciding about the substitution of new plants.
➢ Helpful in sales price and quantity.
➢ Helpful in determining marginal cost.

6.6 Computation of Break-Even Point

The breakeven point can be computed by the following methods:
1. Algebraic formula
2. Graphical method

In algebraic form it is computed in terms of

a) Units Of Sales Volume

BEP = Fixed Cost /Selling Price Per Unit -Variable Cost Per Unit

= fixed cost / contribution

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 b) Money Value

BEP = Fixed Cost / PV Ratio

c) Percentage Estimate Capacity

BEP = Fixed Cost/ Total Contribution X 100

Contribution = Selling Price – Variable Cost

7. Profit Volume Ratio P/V Ratio:

The profit volume ratio which is also called the contribution ratio or margin ratio
expresses the relationship between contribution and sales. Thus, it is measured to
compare profitability of different products. Higher the p/v ratio, the high yielding
is the product.

It can be expressed as:

P/V Ratio = Contribution / Sales X 100
Contribution = Sales – Variable Cost

7.1. Uses Of P/V Ratio

1. Determination of BEP
2. To know profit for given sales volume
3. To know if sales volume to achieve some desire profit p/v ratio can be
increased by:
• Increasing the selling price
• Changing the mix of sales
• Reduction in the variable

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7.2. Effect of decrease or increase in fixed cost on BEP

An increase in fixed costs increases the total costs and shifts BEP towards the right-
hand side. It shows that an increase in fixed cost reduces the margin of safety.
An increase in variable cost also increases the total cost and shifts the BEP towards
the right-hand side. There is a decrease in profit for the same output. Decrease in
fixed cost or variable cost reduces the total costs, shifts BEP towards left hand side
and increase the margin of profit.

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7.3 Effect of Increase or Decrease of Sales Price on BEP:

An increase in the sales price increases the sales income and a new sales income line
has a greater slope. This shifts the BEP towards the left-hand side and increases the
profit.

Decrease in sales income shifts BEP towards the right side.

8 MARGINS OF SAFETY
• Margin of safety (MOS) is the difference between the actual sales and the sales
at the break- even level.
Margin Of Safety = Actual Sales – Break Even Sales
• The size of MOS is a very important indicator of the soundness of a business.
• Common cause of lower MOS is higher fixed costs.

Margin of safety is the distance between the break-even point and the output being
produced. A large margin of safety indicates that the business can earn profit even if
there is great reduction in output. If the margin of safety is relatively small then it
indicates that the profit will be comparatively small even if there is small drop in
output. A low margin of safety level indicates high fixed costs and the profit is not
possible unless the output level is sufficient enough to absorb fixed costs.

Margin of safety is generally expressed as:

(1) Ratio of budgeted sales to sales at BEP.

(2) Ratio of actual sales to sales at BEP.

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 (3) Percentage of budget to BEP.
(4) Percentage of budget to actual sales at BEP.
(5) Percentage of the difference between actual sales and break-even sales
to budgeted sales.

In case unsatisfactory margin of safety, the following measures should be taken:

1. Increase in sales price.

2. Reduction in fixed costs.
3. Reduction in variable costs.
4. Increase in output.
5. Stop production of the non-profitable items and pay more attention towards
profitable items

Mathematically:

Margin of Safety = 𝑠𝑎𝑙𝑒𝑠−𝑠𝑎𝑙𝑒𝑠 𝑎𝑡 𝐵.𝐸.𝑃. × 100 𝑠𝑎𝑙𝑒𝑠 = 𝑝𝑟𝑜𝑓𝑖𝑡 ×𝑠𝑎𝑙𝑒𝑠 𝑠𝑎𝑙𝑒𝑠−𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑐𝑜𝑠𝑡𝑠.

9. How Can Break-Even Analysis Help an Entrepreneur Planning

to Launch a Business?
1) Know the Minimum Sales Volume Needed to Avoid Losses

Break-even analysis will help an entrepreneur determine the sales quantity or

number of products that must be sold in order for the business to generate enough
revenue to pay its expenses. Knowing how many units must be sold to reach the
break-even point will allow an entrepreneur to avoid incurring losses over a given
period of time.

2) Plan Your Target Profit Levels

Break-even analysis allows an entrepreneur to know how much profit he can earn
at different sales volumes. Any sales volume or number of units sold exceeding the
breakeven point will result in a profit. By setting various sales volumes that exceed
the break-even point, an entrepreneur will know how much profit can be generated
at each sales volume. This helps an entrepreneur to set sales targets that will let her
achieve desired profit levels.

3) Set the Optimum Price

The price of the product is one of the major factors that a company must consider
when getting started -- setting the right price can spell the difference between
failure and success of an enterprise. One major aspect to be studied when
determining the selling price of a product is the effect of the price on the
profitability of the business. Setting different price levels and evaluating the break-

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 even analysis at each level will help an entrepreneur study the effect of each price
level in relation to other major factors such as consumer affordability, price
competitiveness and effect on inventory management.

4) Schedule Your Merchandise Inventory Requirements

Break-even analysis will help an entrepreneur schedule product inventory levels.
Entrepreneurs must stock enough inventories to have products available for sale
over a given period of time. The quantity of stock that must be available to
consumers at any given time plus the schedule of additional stock to be purchased
or manufactured are matters that can be planned only after the break-even analysis
has been made. After setting inventory volume based on figures provided by the
break-even analysis, an entrepreneur can prepare initial inventory stock and plan a
schedule of restocking based on cash flow.

10. Conclusion: -
BEP is useful as a first step in developing financial applications, which can be
used in invoicing and budgeting. The main purpose of this analysis is to have
some idea of how much to sell, before a profit will be made. BEP is extremely
important before starting a new project or launching a new product because it
gives answers to crucial questions such as “how sensitive is the profit of business
to decrease in sales or increase in cost”. This analysis can be also extended to
early stage business in order to determine how accurate the first predictions were
made and monitor whether the firm is on the right path. Even mature businesses
must take into consideration their current BEP and find ways to lower that
benchmark in order to increase profits.

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 CHAPTER 8: PREPARATION OF PERT/CPM CHART FOR
VARIOUS ACTIVITIES INVOLVED IN A PROJECT

1. INTRODUCTION
An entrepreneur is ordinarily called a businessman. He is a person who combines
capital and labor for the purpose of production. He organizes and manages a
business unit assuming the risk for profit.
A clear distinction between a capitalist and an entrepreneur is that, while a
capitalist is only a financier, an entrepreneur is the coordinator and organizer of a
business enterprise.
As a result of the increased competition environment, it has been obligatory to
complete the project in the foresighted time and with the specified sources.
An effective project management is necessary to finish the project without delay.

The project planning techniques are utilized to satisfy these necessities. Project
Evaluation and Review Technology (PERT) and Critical Path Method (CPM) are
two most valuable and useful techniques for the planning, scheduling and managing
large projects in terms of cost, path and time.
These two methodologies help project managers to keep a sight on the progress of
the entire project.
There are situations when it is too difficult to estimate the time of some activities
and deal with the impact of several uncertain factors, PERT is a technique through
which a manger can calculate the approximate probability of completion of a
project within the required time and CPM helps him in selecting the nearest path
among the several path.
When taking on a complicated project, it’s often hard for a business owner to
visualize the schedule and risks. Using the Program Evaluation and Review
Technique, or PERT, and the Critical Path Method, or CPM, can help break large
efforts down into smaller tasks and show how different tasks are related to one
another.
They both make it easier to see relationships and dependencies between tasks and
are useful in estimating how long a project will take. While the CPM assigns a

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 single time interval between tasks, using PERT along with it can help you
anticipate where delays are likely to occur.
A project is composed of jobs, activities, functions or tasks that are related one to
the other in some manner, and all of these should be completed in order to complete
the project. Every project has one specific purpose: it starts at some specific
moment and it is finished when its objectives have been fulfilled.

For completion of a project, two basic things are required:

1. Material resources
2. Manpower resources

Each project, whether big or small has three objectives:

1. The project should be completed with a minimum of elapsed time
2. It should use available manpower and other resources as sparingly as possible,
without delay.
3. It should be completed with a minimum of capital investment, without delay.

2. PLANNING
Planning is the most important phase of project management. Planning involves
defining objectives of the project, listing of tasks or jobs that must be performed,
determining gross requirements for material, equipment and manpower and
preparing estimates of costs and durations for the various jobs or activities to bring
satisfactory completion of the project.
It is a statement of intent, i.e., what is to be done. It is interpreted in terms of what
has to be done to resources to achieve the intent. The resources to be used may be:
office staff, labor, materials, plant and machinery, space and funds.
Plans are detailed methods, formulated before-hand for doing or making something.
Plans simply list the goals and define the means of achieving them. These listed
goals are called events and means of achieving these goals are known as operations

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 or activities in attaining a final target set aside by the plan. The size of the activities
depends on the nature and scale of the project; however, each activity should be
sufficiently well defined, for work on them to proceed without interruption from
other tasks. Activities are those operations of the plan which take time to carry out
and on which resources are expended.

3.SCHEDULING
Scheduling in project management is the listing of activities, deliverables and
milestones within a project. Includes planned start, duration and resources assigned
to each activity.
CPM (Critical Path Method) and PERT (Programme Evaluation Review Technique)
are project management techniques, which have been created out of the need of
Western industrial and military establishments to plan, schedule and control complex
projects.
In other words, scheduling is the laying out of the actual activities of the project in
time order in which they are to be performed and calculating the manpower and
material requirements needed at each stage of production, along with the expected
completion time of each of the activities.

4.METHODS OF PLANNING AND PROGRAMMING

Complex research and development projects can be managed effectively if project
managers have the means to plan and control the schedules and costs of the work
required to achieve their technical performance objectives.
Project plans can become a powerful communication tool within the team throughout
the project. They serve as an important written reference for the project manager,
team members, and external stakeholders. These plans also help to mitigate risk and
maintain quality at all stages of the project — from planning to completion.

4.1 FOLLOWING ARE SOME OF THE TOOLS OR TECHNIQUES OF

PROJECT MANAGEMENT.
• Bar charts and milestone charts
• Network diagrams

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4.1.1 BAR CHART AND MILESTONE CHARTS
A bar chart is a way of summarizing a set of categorical data (continuous data
can be made categorical by auto-binning). The bar chart displays data using a
number of bars, each representing a particular category. The height of each bar is
proportional to a specific aggregation (for example the sum of the values in the
category it represents). The categories could be something like an age group or a
geographical location. It is also possible to color or split each bar into another
categorical column in the data, which enables you to see the contribution from
different categories to each bar or group of bars in the bar chart.

A milestone chart is a tool used to visualize milestones, which are the significant
planned events that are scheduled to happen during a specific time in a project
timeline. It highlights the planned dates and the completion of milestones.

4.1.2 NETWORK METHODS

Network diagram is an outcome of the improvements in the milestone charts.
The network techniques are a major Advance in management science. This
technique is based on the basic characteristics of all projects, that all work
must be done in well-defined steps. For example, for completing a foundation,
the various steps are:
1. layout, 2. digging, 3. placing side boards and 4. Concreting.
The network technique exploits this characteristic by representing the steps
of the project objective graphically in the form of a network or arrow diagram.

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 TWO METHODS:PERT and CPM

BASIC COMPONENTS OF NETWORK DIAGRAM:

1) EVENTS (NODE)
A specific point in time at which an activity begins and ends is called a node. It
is recognizable as a particular instant in time and does not consume time or
resource. An event is generally represented on the network by a circle, rectangle,
hexagon or some other geometric shape. A particular event out of various events
on the network diagram may be specified as:
● Tail Event: A tail event is the one which marks the beginning of the activity.
If a particular tail event represents the commencement of the project it is
known as the initial event.

● Head Event: Activities that are connected to the head or the end of the
arrow is known as head event. If the particular head event marks the
completion of the project it is known as the final event.

● Dual Event: Some events which are head events to some activity and tail
event to some other activity are known as Dual Events.

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2) ACTIVITY
An activity is a task, or item of work to be done, that consumes time, effort,
money or other resources. It lies between two events, called the ‘Preceding’ and
‘Succeeding’ ones. An activity is represented on the network by an arrow with
its head indicating the sequence in which the events are to occur. In a network
diagram, activities are represented by simple arrows, usually drawn from left to
right.
• Predecessor Activity:
An activity which must be completed before one or more other activities start
is known as Predecessor activity.
• Successor Activity:
An activity which started immediately after one or more of other activities
are completed is known as Successor activity.
• Dummy Activity:
Certain activities which neither consume time nor resources but are used
simply to represent a connection between events are known as dummies. A
dummy activity is depicted by dotted line in the network diagram.

THE FOLLOWING NETWORK RULES SHOULD BE NOTED:

● Initial node has only outgoing arrows. Only one single initial node is allowed.
● An event cannot occur until all the activities leading to it are completed.
● An event cannot occur twice. There cannot be lopping back to previous
occurred events.
● Dead end cannot be left except for the final node.
●No activity can start until its tail end event has occurred.
● Arrow heads points correct way to indicate the true control situation.
● It is usual practice to show the time flow from left to right.

GRAPHICAL GUIDELINE FOR NETWORK DIAGRAM

There are number of rules in connection with the handling of events and
activities of a project network which are given below:
● Each activity is represented by one and only one arrow in the network. This
implies that no single activity can be represented twice in the network.
● No two activities can be identified by the same beginning and end event.
● In order to ensure the correct precedence relationship in arrow diagram
following question must be checked whenever any activity is added to a
network.
What activity must be completed immediately before this activity can start?
What activities must follow this activity?
What activities must occur simultaneously with this activity?
● A network should be developed on the basis of logical or technical dependence.
● The arrows depicting various activities are indicative of logical precedence
only; hence length and bearing of the arrows are of no significance.
● The flow of the diagram should be from left to right.
● Two events are numbered in such a way that the event of higher number can
happen only after the event of lower number is completed.

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 ● Arrows should be kept straight and not curved. Avoid arrow which cross each
other.
● Avoid mixing two directions vertical and standing arrows may be used if
necessary.
● Use dummy activity freely in rough graph but final network should have only
reluctant dummy.
● The network has only one entry point called the start event and one point of
emergence called end event.
● Angle between the arrows should be as large as possible.

5. CRITICAL PATH METHOD

If the duration of each activity is known with certainty, then a critical path method
can be used to determine the length of time required to complete the project. CPM
also can be used to determine how long each activity in the project can be delayed
without delaying the completion of the project. CPM breaks down larger projects
into smaller, discrete tasks and maps them out on their logical sequence.

5.1 CRITICAL PATH SCHEDULES

• Help you identify the activities that must be completed on time in order to
complete the whole project on time.
• Show you which tasks can be delayed and for how long without impacting the
overall project schedule.
• Calculate the minimum amount of time it will take to complete the project.
• Tell you the earliest and latest dates each activity can start on in order to
maintain the schedule.

5.2 CRITICAL PATH ANALYSIS

• Critical Path is the sequence of activities consuming longest duration.

SI.No Activity Duration

1 Activity 1 3
2 Activity 2 2

• Delay in any activities in critical path will result in the delay of the project
completion.

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 3 Activity 3 7
4 Activity 4 2
5 Activity 5 4

THERE ARE THREE PATHS THROUGH THIS PROJECT

Start → A1 → A3 → A4 → Finish 3+7+2 = 12
Start → A2 → A3 → A4 → Finish 5+7+2 =14 CRITICAL PATH
Start → A2 → A5 → Finish 5+4 = 9

5.3 FLOAT DETERMINATION

Float is defined as the amount of time a activity can be delayed without causing a
delay to subsequent activity.
• For critical path, the float of each activity will be zero.
• Now take the next longest path and subtract its duration from that of the
critical path. That's the float for each of the activities on that path.
PATH DURATION DURATION FLOAT
OF CP (A) OF PATH (A - B)
(B)
S → A1 → A3 → A4 → F 14 12 2
S → A2 → A3 → A4 → F 14 14 0
S → A2 → A5 → F 14 9 5

5.4 IMPORTANT TERMS

Duration: Duration is the estimated time required to complete an activity.
Early start time: The Earliest Possible Time which an activity may start.
Early finish time: The sum of the earliest start time of an activity and the
time required for its completion.
Late start time: The latest possible time at which an activity may start without
delaying the date of the project.
Late finish time: The sum of the late start time of an activity and the time
required for its completion.
Total float: The difference between the maximum time allowed for an activity
and its estimated duration is called total float.

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Critical activities: The event which has no float, are called critical activities.
Critical path: The path in the network joining the critical events is called the
critical path of the work.

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5.5 STEPS OF CPM
STEP 1: LIST OUT THE ACTIVITIES

STEP 2: DIAGRAMMATIC REPRESENTATION

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STEP 3: DETERMINATION OF EARLY START AND FINISH TIME AND
LATEST START AND FINISH TIME

Early Start(ES)=Previous node earliest finish

Earliest Finish(EF)=Earliest Start(ES)+Duration

Slack Time (SL)/Float=Latest Finish (LF)-Earliest Finish (EF)

Latest Start (LS)=Latest Finish (LF)-Duration
Latest Finish (LF)=Previous node Latest Start

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STEP 4: DETERMINATION OF CRITICAL PATH

CRITICAL PATH

: Thus, the critical path is START-->A-->B-->C-->E-->F-->J-->L-->N-->FINISH

5.6 ADVANTAGES OF CPM

• Reduce delays: The Critical Path Method helps identify the most important
sequence of tasks in a project. Managers can use this information to reduce
delays by optimizing the work along the critical path.
• Visualize dependencies: The CPM depends on listing all tasks associated with
a project and their dependencies. The chart thus created can help you visualize
all dependencies and prioritize tasks accordingly.
• Improve organization: In complex projects, the CPM helps break down into
small sequences, and sequences into tasks. This, along with the focus on

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 visualizing dependencies, mapping constraints, and defining the critical path of
tasks drastically improves project organization.
• Optimize efficiency: By mapping the critical path, project managers get a
better idea of important tasks in the project. They can use this information to
allocate resources more efficiently, adding/removing resources depending on
the task's importance.
• Float calculation: Float, defines how much a task can be delayed without
impacting the project schedule. This is an important part of the Critical Path
Method. Calculating the float can help you distribute resources more
effectively.

5.7 LIMITATIONS OF CPM

The main limitations of the CPM are:
• CPM operates on the assumption that there is a precise known time that each
activity in the project will take. But it may not be true in real practice.
• CPM time estimates are not based on statistical analysis.
• CPM cannot be used as a dynamic controlling device as there are no structural
changes included here.

6. PERT
• The program (or project) evaluation and review technique (PERT) is a statistical
tool used in project management, which was designed to analyze and represent
the tasks involved in completing a given project.
• PERT is a method of analyzing the tasks involved in completing a given project,
especially the time needed to complete each task, and to identify the minimum
time needed to complete the total project. It incorporates uncertainty by making
it possible to schedule a project while not knowing precisely the details
and durations of all the activities. It is more of an event-oriented technique rather
than start- and completion-oriented, and is used more in those projects where
time is the major factor rather than cost. It is applied on very large-scale, one-
time, complex, non-routine infrastructure and on Research and Development
projects.
• PERT offers a management tool, which relies "on arrow and node diagrams
of activities and events: arrows represent the activities or work necessary to reach
the events or nodes that indicate each completed phase of the total project.
• PERT and CPM are complementary tools, because "CPM employs one time
estimation and one cost estimation for each activity; PERT may utilize three time
estimates (optimistic, expected, and pessimistic) and no costs for each activity.
A PERT diagram has the following 3 components:
1. PERT event- Event is the main building block of a PERT diagram. It is defined as a
point that marks the start or completion of one or more activities.
2. Predecessor event- It is an event that immediately precedes some other event
without any other events intervening.

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3. Successor event- It is an event that immediately follows some other event without
any other intervening events.

All estimates are subject to uncertainty, and project schedules are no exception. The
schedule for a project contains uncertainty because the estimated effort or duration of
each task has some uncertainty associated with it. The main reason that PERT may
provide inaccurate information about the project completion time is due to this
schedule uncertainty. This inaccuracy may be large enough to render such estimates as
not helpful.

6.1 PERT HAS DEFINED 4 TIME ESTIMATES TO ACCOMPLISH AN

ACTIVITY:
1. Optimistic time(to)- It is the minimum possible time by which an activity can be
completed assuming that everything is in order according to the plan and there can be
only a minimum amount of difficulty.
2. Pessimistic time(tp)- It is the maximum possible time by which an activity can be
completed assuming that things may not be in accordance with the plan and there can
be incidence of difficulties in carrying out the activity.
3. Most likely time(tm)-It is the estimate of time for completion of an activity, which
is neither optimistic nor pessimistic, assuming that things should go in a normal way.
4.Expected time(te)- It is also called as Mean duration or Average duration. It is
calculated as per the formula,
te = (to + 4 tm + tp)/6
where,
to=optimistic time,
t=most likely time,
tp=pessimistic time

PERT considers ‘te’ as more probable time estimate for activities and then the
network construction and the critical path is drawn.

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6.2 STEPS OF PERT
STEP 1:

STEP 2: FORWARD PASS CALCULATION

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 STEP 3: BACKWARD PASS CALCULATON

STEP 4: CRITICAL PATH CALCULATION

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6.3 ADVANTAGE OF PERT

• Planning for Large Projects - The scheduling of project activities is done easily
with the help of the PERT system by the project manager. This technique is
more active in large sophisticated project works. As PERT is an event-oriented
programming technique, three elements are necessary to define an event.
• Visibility of Critical Path - The PERT method will show the critical path in a
well-defined manner. The critical path is the path with activities that cannot be
delayed under any circumstances. Proper knowledge about the stack values
with limited conditions of dependencies will help the project manager to bring
fast and quality decisions that will favor the project performance.
• Analysis of Activities - The activity and the events are analyzed from the
PERT networks. These are analyzed independently as well as in combination.
This will give a picture about the likely completion of the project and the
budget.
• Coordinating Ability – The various departments of the construction
organization will deliver data for the PERT activities. Good integration is
developed between all the departments which will help in improving the
planning and the decision-making capabilities of the project team. The
combination of qualitative and quantitative values from a large amount of data
will help in improving the coordination of the project activities. This will also
improve the communication between various departments of the organization.
• The What-if -Analysis - The possibilities and the various level of uncertainties
can be studied from the project activities by properly analyzing the critical
path. This type of analysis is called what-if-analysis. For these various sets of
permutation and combination are conducted. Among them, the most suitable
combination is taken into consideration. This set chosen will be the one with
minimum cost, economy and best result. This analysis helps to identify the risk
associated with any activities

6.4 LIMITATION OF PERT

• Time Focused Method - The method of PERT is a time-oriented method, where

the time required to complete the respective activity is of higher importance.
Hence the time determination of each activity and its allocation is very much
necessary. This is done based on an assumption and within this time the work
will be completed. If this is not the case issues will arise.
• Subjective Analysis - The activities for a project are identified based on the
data available. This is difficult in case of PERT as these are mostly applied for
a project that is newly conducted or those without repetitive nature. The project
dealt by PERT will be fresh project data that make the collection of information
to be subjective in nature. This will bring less accuracy on the time and the
estimated time. There are chances to have inaccuracy and bias in the sources of
data. This makes it unreliable. As this is not repetitive in nature, there is no
sense in bringing the records from the past historical data.

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 • Inaccuracy due to Prediction - As there is not past records or assistance to bring
an outline for the project, predictions take their role. The overall project may
move to total loss if the predictions and the decisions are inaccurate. No trial
and error method can be employed.
• Expensive - As this method is carried out based on predictions overall, they
find too expensive in terms of methods employed, the time consumed and the
resources used.
• Other Issues - This method is highly labor-intensive in nature. As there are
chances of increase in project activities large and complicated networks are
developed as many task dependencies come into existence. If two activities
share common resources, this technique won't find very apt for the project.

.6.5 COMPARISON BETWEEN CPM AND PERT:

7. CONCLUSION
• PERT and CPM are two network - based project management techniques,
which exhibit the flow and sequence of the activities and events. The
PERT/CPM combined or unified network approach to project planning and
control is rated to the best form of project management system at present. This
planning technique involves analyzing minutely the various jobs comprising a
project, preparation of the network indicating logical and sequential
relationship, scheduling by computing time parameters and monitoring and
control involving updating and time-cost trade-offs if necessary.
• The main goals of the PERT method are to define the estimated duration of a
project. If these activities get delayed, the total execution of the project will get
delayed too.
• The main difference is that CPM uses deterministic activity durations and
PERT consists of probabilistic activity duration.
• The difference between these two project management tools is getting blurred
as the techniques are merged with the passage of time. That is why, in most
projects, they are being used as a single project. The primary point that
distinguishes PERT from CPM is that the former gives the extreme importance
of time, i.e., if the time is minimized, consequently the cost will also be
reduced. However, cost optimization is the basic element, in the latter.
• In conclusion if you as a project manager are working with a project for the
first time it would probably be best to use PERT. After using the method and

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getting more consistent completion times for activities, they at that point can
became the duration of activities using CPM.
§

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 CHAPTER 9: VARIOUS STRESS MANAGEMENT
TECHNIQUES

1. INTRODUCTION:

People tend to think of fast cars, luxury vacations, and designer clothes when they
hear the word “entrepreneur”, but for many, this is far from the reality. The life of
many entrepreneurs is filled with hard work, long hours, and stress – the sacrifices
they make to achieve their goals.
Stress management is an essential skill for entrepreneurs. Why? Running a
business is tough, and you’re bound to run into some issues on your journey.
Perhaps some of your orders are delivered late and you need to deal with upset
customers. Maybe you’re struggling to find new products to sell in your online
store. Whatever the issues are, it’s important that you understand how to manage
stress so you can continue moving forward with your business.
We’re here to help you succeed as an entrepreneur, so we’ve created this
article to provide you with our top stress management tips. At the end of this
article, you’ll be armed with the information you need to turn your stress into
positive energy.

2. DEFINITION OF STRESS:

Stress is that frustration that you feel after an

especially hard day at work. It’s the anxiety that you
feel if you’re worried about your job security. It’s
that sinking feeling that you get if you’ve taken too
much work on. But, it can also be the cause of that

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extra burst of energy that you get when you really need to perform. Stress can come in
different forms, and it’s essential that you understand how your body reacts to stress.
Once you gain an understanding of how your body handles stress, you can take the
necessary steps to build a stress management routine that works for you.

Stress management is essential for the longevity of your career, no matter the
industry you’re involved in. We all face issues and pressures, but when you’re building a
long-term career for yourself, you need to think and act for the long-term too – that
includes looking after yourself. There will always be bumps in the road, but effective
stress management will help you to overcome them, and power through at full-speed. The
benefits of stress management are many but the most important thing is that it helps
alleviate the symptoms of stress which can have a detrimental effect on our health even in
the short term.

3. DIFFERENT TYPE OF STRESS:

• Acute
• Episodic acute
• Chronic

3.1. Acute Stress: -

Acute stress is the most common form. It’s the short – term stress that comes
from obvious triggers like running late for work, or being involved in a vehicle
accident.
3.2. Episodic Stress: -
Episodic stress is the same type of stress as acute stress, but it happens more
frequently. If you know someone who’s got a lot of nervous energy, is always

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 rushing and running late, or is constantly tense about something in the future,
they’re probably suffering from episodic acute stress.
According to the APA (American Psychological Association) , people who suffer
from episodic acute stress tend to blame their troubles on external events or other
people:
Often, lifestyle and personality issues are so ingrained and habitual with these
individuals that they see nothing wrong with the way they conduct their lives.
3.3. Chronic Stress: -
This is what the APA calls “the grinding stress that wears people away day after
day, year after year.” Chronic stress comes from ongoing issues like poverty,
being trapped in an unhealthy relationship, or working in a job you hate. The
APA says this is “the stress of unrelenting demands and pressures for seemingly
interminable periods of time”. Because chronic stress wears on us over time, it
can lead to physical distress like heart attack and stroke, and can lead suffers to
breakdowns resulting in suicide or violence. Clearly, this isn’t something we want
to experience. But stress isn’t necessarily bad—at least, not always. We
experience stress for a reason, and our body’s response to stress can be beneficial
in the right circumstances.

4. SOME SYMPTOMS OF STRESS:

Stress can affect all aspects of your life, including your emotions, behaviors, thinking
ability, and physical health. No part of the body is immune. But, because people
handle stress differently, symptoms of stress can vary. Symptoms can be vague and
may be the same as those caused by medical conditions. So, it is important to discuss
them with your doctor.

You may experience any of the following symptoms of stress.

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4.1. Emotional Symptoms Of Stress Include:
• Becoming easily agitated, frustrated, and moody
• Feeling overwhelmed, like you are losing control or need to take control
• Having difficulty relaxing and quieting your mind
• Feeling bad about yourself (low self-esteem), lonely, worthless, and
depressed
• Avoiding others
4.2. Physical Symptoms of Stress Include:
• Low energy
• Headaches
• Upset stomach, including diarrhea, constipation, and nausea
• Aches, pains, and tense muscles
• Chest pain and rapid heartbeat
• Insomnia
• Frequent colds and infections
• Loss of sexual desire and/or ability
• Nervousness and shaking, ringing in the ear, cold or sweaty hands and feet
• Dry mouth and difficulty swallowing
• Clenched jaw and grinding teeth
4.3. Cognitive Symptoms of Stress Include:
• Constant worrying
• Racing thoughts
• Forgetfulness and disorganization
• Inability to focus
• Poor judgment
• Being pessimistic or seeing only the negative side
4.4. Behavioral Symptoms Of Stress Include:
• Changes in appetite -- either not eating or eating too much
• Procrastinating and avoiding responsibilities
• Increased use of alcohol, drugs, or cigarettes
• Exhibiting more nervous behaviors, such as nail biting, fidgeting, and
pacing

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5. CAUSES OF STRESS:
Everyone has different stress triggers.
Sometimes the stress comes from inside,
rather than outside. You can stress
yourself out just by worrying about
things. All of these factors can lead to
stress. The stress experienced by
entrepreneurs, has many root causes,
most of which are self-induced. The
situations and pressures that cause stress
are known as stressors. We usually think of stressors as being negative, such as an
exhausting work schedule or a rocky relationship. However, anything that puts
high demands on you can be stressful. This includes positive events such as
getting married, buying a house, going to college, or receiving a promotion. Of
course, not all stress is caused by external factors. Stress can also be internal or
self-generated, when you worry excessively about something that may or may not
happen, or have irrational, pessimistic thoughts about life. Finally, what causes
stress depends, at least in part, on your perception of it.

5.1. Main Causes of Stress: -

• Frustration: - Many entrepreneurs get stressed up from struggling to achieve

goals that are unrealistic. They believe they can achieve and then work so hard
but get frustrated and discouraged when at the end they realize they were over
ambitious.
• Conflict: -It occurs when two or more people oppose one another because their
needs, wants, goals, or values are different. It is almost always a accompanied
by feelings of anger, frustration, hurt anxiety or fear.

5.2. Causes Of Stress at Home: -

• Bereavement- Death of spouse,

family, relatives or friend
• Taking care of a relative
• Chronic diseases or injury
• Mental issues
• Life changing event

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 • Money worries
• Family conflict
• Emotional problems (depression, anxiety, anger, grief, guilt, low self-esteem)
• Traumatic event, such as a natural disaster, theft, rape, or violence against you
or a loved one

5.3. Causes Of Stress at Work: -

• Competition
• Limited capital
• Physical work environment
• Lack of support
• Change management
• Role conflict
• Having a heavy workload or too much
responsibility
• Working long hours
• Having poor management, unclear
expectations of your work, or no say in the
decision-making process

• Working under dangerous conditions

• Being insecure about your chance for
advancement or risk of termination
• Having to give speeches in front of colleagues
• Facing discrimination or harassment at work, especially if your company isn't
supportive

6. NEED OF STRESS MANAGEMENT:

Stress often results if a person feels that there are high
pressures or demands, that there is a threat to their well-
being or that they don't have enough resources to cope
with the demands. Common sources of stress include a
person's physical environment (e.g., noisy streets or an
unsafe living space), relationships, work, life situations
and major life changes. These situations can include

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negative events such as financial problems, relationship breakup, difficulties at work
or school, injury, illness or death and grieving. However, situations leading to stress
can also include positive changes, such as work promotions, getting married or buying
a house. Because stress is a normal part of life, everyone experiences it. However, the
intensity, frequency and duration of stress will be different for each person.

The stress will affect a human body in different ways. The major
two effects which are commonly known as;
• Physical effects
• Mental effects

6.1. Physical Effects: -

Most of us are so used to being stressed, we often
don't know we are stressed until we are at the
breaking point. Most of the physical effects are;
• Aches and pain: - Over stress reaches to the
ultimate level of it, like aches and pains in a
body. It makes the person weak and that effect
the works.
• Trouble sleeping: - Regular sleeping for 8 hours
for an average person is important to his health.
Stress can make a trouble sleep and the health will be affected. And the
diseases like insomnia may be affected
• High Blood Pressure: - High stress makes physically effected by having high
blood pressure, and the person got weak in health.
• Digestive problems: - Physical effects contain a major issue like this. Stress
can also worsen digestive condition like stomach ulcers etc.
• Chest pain: - Chest pain will make us feel like our heart is racing and it
difficult the person physically.

6.2. Mental Effects: -

Stress has a psychological impact that can

manifest as irritability. Continued stress can
lead to other problems, such as depression,
anxiety or burnout.

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 • Restless: -Stress makes human mind to get very hurry in every work in every
time. It makes mind feel like having restless work. And it can make our mind
tired.
• Overwhelmed: - As part of these kind of restless work, the human body
become overwhelmed.
• Lack of motivation: - A team work needs an important role of motivation. Lack
of motivation can provide a non-productive team for a work. This kind of
motivation can be provided by a stress less mind.
• Over anger: - Mental disorder due to stress can make over anger in a peace
mind. Over anger is a usual thing which we all passes through. This is a type of
disorder due to stress.
• Depression: - Stress can make some mind fall in depression. Different people
effects in different ways. One of this is shown here. Depression never can
make a productive idea.
• Anxiety: - Anxiety can make a person very distressed and make the person get
overeaten.
The effects of stress are discussed above. Here we can understand the important of stress
management. Stress is a usual thing, but it should not be ignored. The stress management
plays a role here. Stress needs the management to overcome such situations like here we
discussed.

7. STRESS MANAGEMENT TECHNIQUES:

As we all know that stresses are the silent
killers. It keeps its silent nature up to the
condition of the individual get badly affected.
Stresses cannot be completely stopped but it
can be controlled. Some are given below.

The techniques are categorized into three

groups:

1. Action Orientated Approaches

2. Emotion-oriented approaches
3. Acceptance-oriented approaches

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7.1. Action Orientated Approaches:

It is used to take action to change a stressful situation

7.1.1. Be Assertive: -Clear and effective communication is the key to

being assertive. When we’re assertive, we can ask for what we want or need,
and also explain what is bothering us. The key is doing this in a fair and firm
manner while still having empathy for others. Once you identify what you need
to communicate, you can stand up for yourself and be proactive in altering the
stressful situation.
7.1.2. Reduce the Noise: - Make time for some
quietness each day. You may notice how all those
seemingly urgent things we need to do become
less important and crisis-like. That to-do list will
be there when you’re in a place to return to it.
Remember that recharging is a very effective way
of tackling stress.
7.1.3. Manage Your Time: - When we prioritize and organize our tasks, we create
a less stressful and more enjoyable life. It may include family, work,
personal. The more stress making events can be manage first so that we can
reduce stress.
7.1.4. Creating Boundaries: - Boundaries are the internal set of rules that we
establish for ourselves. They outline what behaviors we will and won’t
accept, how much time and space we need from others, and what priorities
we have.
7.1.5. Healthy Boundaries: -These are essential for a stress-free life. When we
have healthy boundaries, we respect ourselves and take care of our well-being
by clearly expressing our boundaries to others.
7.1.6. Get Out of Your Head: -
Sometimes it’s best not to even try contending
with the racing thoughts. Sometimes you just
need a break. Distract yourself. Watch a movie,
phone or catch up with a friend, go for a walk, or
do something positive that you know takes your
mind off things
As Nelson & Hurrell said:

“Stress is inevitable, distress is not”

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 7.2. Emotion–Orientated Approaches:

Emotion-oriented approaches are used to

change the way we perceive stressful
situations.

7.2.1. Affirmations And Imagery: - The power of positive imagery and

affirmations is now scientifically proven to increase positive emotion.
Affirmations are a great way to reprogram your mind and visualize your
dreams. Affirmations helps to strengthen the believes whether it is positive
or negative. How? When you think of a positive experience, your brain
perceives it to be a reality. So, replace those negative thoughts with positive
statements and challenge and change the way you see and experience the
world.

We can use the words like;

• I am super healthy
• I am super lucky
• I am really happy with my job. Etc.
7.2.2. Cognitive Restructuring: -In the mid-1950’s psychologist Dr. Albert Ellis
developed what cognitive restructuring, a technique for understanding
negative emotions and challenging the sometimes-incorrect beliefs that cause
them. Cognitive restructuring is a group of therapeutic techniques that help
people notice and change their thinking patterns.

For example, if you are trying to increase the profit by increasing the hard
work. But still you got some loss.

• Dysfunctional thought: “What is the point? I’ll never get more profit
• Functional thought: “This is just temporarily set back, I‘ll get
eventually if I just stick with it.

“Whether you believe you can or you can’t, you are usually right”

- Henry Ford

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7.2.3. ABC Technique: -The ABC technique was also originally created by
psychologist Dr. Albert Ellis and was later adapted by Martin Seligman.
The letters ABC stand for;

A – activating event, or the stressful event.

B – Beliefs, or the way that you respond to the event.

C – consequences.

The result of your beliefs leads to the actions and outcome of that event.
Essentially, the more optimistic your beliefs, more positive the outcome.

For example: If a colleague is criticizing your imagination about a product, infront

of your other team mates, it will create a stress in you. Thin situation is called
activating event. Through this incident the thoughts originating in you like “Yes I
am useless and I am ashamed in front of everyone because of him/ her. This is you
believe. The consequences are the final emotion. From this event you will be
angry at him and you don’t have any courage to propose another idea in front of
others. This is negative effect. Otherwise, you can think like that “This Idea was
flop but I can give better idea” or “I need to work out more about the topic, so that
I can give better suggestions “This will give more confidence to you. The
modifications of ABC technique introduce other terms like Disputations and
Effects

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 7.2.4. ABCDE Model

• Disputations: -

Although distraction is useful for

interrupting negative thinking, a more
permanent solution is to dispute them.
Think of Disputation as a "D" after
ABC.

To dispute your negative thoughts and beliefs, you argue with yourself rationally.
In particular, you look for the mistaken assumptions about your explanatory style
that we talked about earlier.

• Effect: - Effect or consequences of challenging self-defeating beliefs.

E stands for New Effect or the new, more effective emotions and behaviours that
result from more reasonable thinking about the original event.

7.3. Acceptance-Orientated Approaches: -

Useful in stressful situations that you cannot control. Acceptance oriented
approaches includes thoughts and feelings as well as taking care of mind and
body during stressful situations.
7.3.1. Diet and Exercise: -
Benefits of eating healthy foods extend
beyond your waistline to your mental
health. A healthy diet can lower the effects
of stress, build your immune system, level
your mood, and lower your blood pressure.
Lots of added sugar and fat can have

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 opposite effect. Eating a diet with a variety of nutrients both protects physical
and provides mental energy to deal with challenges. So, eat a healthy and
balanced diet. People who exercise also tend to feel less anxious and more
positive about themselves. Running, dancing, swimming, cycling, etc. can be
done as exercise.
7.3.2. Meditation and Physical Relaxation: -
Meditation works well for many people and has
many benefits. It lowers stress, anxiety and
chronic pain as well as improves sleep, energy
levels and mood. You can also use techniques
such as deep breathing, yoga, etc.
7.3.3. Get Rid of Smoking and Alcohol: -
As we all know smoking and alcohol consumption
is injurious to health, it also affects the stress
negatively.

7.3.4. Build Resilience: -Resiliency is our ability to bounce back from stressful or
negative experiences. To simplify, resilient people are skilled at accepting
that the situation has occurred, they learn from what transpired and then they
move on.
7.3.5. Talk It Out: - Don’t hold it all inside. Talk to
someone close to you about your worries or the things
getting you down. It can lower your stress level. If you
don’t feel up to sharing, writing them down is also a
great way to release them. Or maybe engage with an
independent professional. There are plenty of services
available, including free services.
7.3.6. Sleep: -
Getting a good night sleep is fundamental for
recharging and dealing with stressful situations in
the best possible way. While it varies from
individual to individual, on the exact amount of
sleep needed, an uninterrupted sleep of
approximately 8 hours is generally
recommended. Lack of sleep i.e., insomnia, is a
side effect of stress.

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 7.3.7. Take Breaks: -Taking breaks is important in
recovering from stress which improves your
performance and also to avoid situations like being
stressed or crazy with work. It could be a five-
minute pause from your work, a half hour lunch
break at work or a weekend exploring somewhere
new.
7.4. Prevention Of Workplace Stress:
• Promote leave, rest and breaks;
• Encourage exercise and meditation, both within and outside of work hours;
• Ensure the workload is in line with workers’ abilities and resources;
• Provide stimulation and opportunities for workers to use skills;
• Boost workplace morale by creating opportunities for social interactions;
• Clearly set out workers’ roles and responsibilities;
• Encourage participation in decision making that affects individual’s roles;
• Encourage open communication;
• Establish no tolerance policy for workplace discrimination;
• Engage an external consultant to suggest a fresh approach to any existing
issues;
• Create family-friendly policies to encourage work-life balance;
and provide training for workplace stress management

8. ADVANTAGES OF STRESS MANAGEMENT

8.1. Business Advantages

8.1.1 Enables You to Motivate Employees Better: -Stress affects the morale of
employees and hence their performance in the workplace. It not only affects
the individual but the business also. Stress demotivates your employees
which causes an increase in absenteeism and employee turnover. By using
good stress management skills, you can boost your employee morale which
motivates and keeps them focused on their jobs and performance.
8.1.2. Improves Productivity In A Stressful Situation: -
When the employee morale is high and remains intact with the workplace
relationship. It improves employee productivity. By using good stress
management skills, there will be very little chance of customer complaints or
poor decision making even in the most stressful situations.

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8.1.3. Enables You to Lead People In Tough Times: -When employees feel stress,
they look to you for guidance and direction. Some of the employees may seek
help from you by discussing their issues one to one. By using good stress
management skills and identifying the stressful issues correctly, you will be
able to lead in tough times.
8.1.4. Reduces Chances of Workplace Conflicts: - Conflict at the workplace is
very common and occurs due to differences in opinions, personalities and
increased levels of stress. It breaks the relationships and weakens the overall
culture. However, effective stress management skills prevent such
distractions, builds teamwork and make everyone’s life easier.
8.1.5. Decreases Chances of Unethical Issues: -Unethical issues often rear its ugly
head during the time of high stress. There have been times when people have
used this practice for shortcut purposes. During that time people start to
blame games and point fingers to others. However, good stress management
skills provide ethics and stress seminars to reduce the chances of unethical
practices.
8.1.6. Increases The Chances of Meeting Deadlines: -When stress increases
employees become distracted depending upon the source of a stressor. As a
result of which they don’t perform up to the expected level and miss
deadlines. However, good stress management skills help them to identify the
stressors before they become an issue and ensure that business should run
smoothly.

8.1.7. Improves Communication Process: -When stress levels are high, there is a
negative effect on communication. Employees won’t discuss jobs between
individuals. Instead, they look for managers to discuss company issues or
problems. However, effective stress management skill helps to identify a
problem and resolve it, which strengthens the communication process.
8.1.8. Helps To Run the Projects Smoothly: -Stress and management go together.
While managing a project you never know when the vendor will delay or not
supplies the input. These issues make it hard to reach a required deadline.
Sometimes the employee of the project is given responsibility and requested
to deal with stress and meeting the deadline.
8.1.9. Enables You to Develop Team: -When employees feel stress they couldn’t
concentrate on their work. Also, there is no unity in the team. They feel

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 irritated when some of the team members comments on them. A situation
arises where an employee discusses his issues with you and seek help to
resolve it. By handling stress as a tool and using effective stress management
resources, you can build and unite the team.
8.1.10.Enables You to Provide Space to Employees: -When employees are
engaged in work and continuously busy, they don’t get time to take rest and
relax which in turn creates stress. Use effective stress management skills and
provide space to your employees so they can take a rest or a break. Allowing
employees to take a breather at work helps them to regain their energy and
reduce the effects of stress.
8.1.11.Helps In the Performance Appraisal Of Employees: -Every employee has a
different threshold of stress. Stress factors can be directly related to job
performance. It also helps to judge how well employees work within the
team. It is measurable also. Effective stress management skills help you to
evaluate and do the performance appraisal of them.

8.2. Health Advantages:

• Decreased anxiety
• Decreased use of medications
• Reduced pain, increased ability to manage pain
• Increased sense of control and self-esteem
• Improved sleep
• Decreased stress related symptoms
• Increased ability to relax physiologically

8.3. Disadvantages Of Poor Stress Management

• Affect health
• Leads to poor performance • Frustrated and useless feelings
• Affect behaviour • Relationship problem
• Social withdrawal • Financial problems
• Drug or tobacco addiction
• Depressed, anxiety

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9. CONCLUSION:

Realistically, stress can never be totally eliminated from a person’s life, off the job or on.
All stress come from wanting something to be different than it is. If we can’t handle
stress, we can’t handle success. Today’s work environment is one of constant and chaotic
change, there needs to be dynamic stress management. Entrepreneurship is a venture that
is challenging and often stressful. Although it could make a very wealthy person out of
nobody, it could as well reduce a wealthy person to a nobody. The stress management
techniques will work if we are honest with ourselves and adopt the techniques in their
fullest spirit.

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 CHAPTER 10: VARIOUS CAUSES AND CONSEQUENCES OF
SICKNESS IN SMALL BUSINESS AND CORRECTING
MEASURES

1. INTRODUCTION
Small scale industries (SSI) are those industries in which the manufacturing,
production and rendering of services are done on a small or micro scale. The
investments in plants, machinery etc are usually one time and do not exceed
₹1,00,00,000.
SSI generally includes industries which produce manufacture and render services with
less manpower with the help of small machines. These fall under the guidelines set by
the Government of India.
a. Some examples of SSI

i. Battery production
ii. Voltage stabilizers
iii. Electronic toys
iv. Inverter production
v. Electronic fan regulator production
vi. Repair and maintenance

b. SSI characteristics

Ownership: They are usually under single ownership. So, they are
generally seen as a sole proprietorship or a partnership.
i. Management: The owner is actively involved with the daily running of
the business. That is , the management and the control is generally
with the owner.
ii. Limited reach: SSI has a confined zone of operations. So, they satisfy
local and regional demand.
iii. Labor intensive: The production in SSI depends upon labour and
manpower. Therefore, their reliance on technology is very low.
iv. Resources: They utilize easily available and local resources. Which
in turn helps the economy with less wastage and better utilization
ofnatural resources.
v. Flexibility: Changing business environments rarely affect these business
units as they are very adaptable. This is an advantage large scale industry
do not have the luxury of possessing.
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 2. SICKNESS IN SMALL SCALE INDUSTRY
● According to the new definition, a small-scale unit will be termed sick if 50
percent of the net worth is eroded in an accounting year on account of
accumulated losses even though the unit has been in production for two years.
● According to the Reserve Bank of India “a sick unit is one which has incurred
cash loss in the previous accounting year and is likely to continue to incur cash
loss in the current accounting year, and has an erosion on account of cumulative
cash losses to the extent of 50 % of those of its net worth”.
● According to ICICI “a sick industry is one whose financial viability is threatened
by adverse factors. The adverse factor might relate to management, fiscal burden,
labour relation or any other. When the impact of factors reaches a point where a
company begins to incur cash losses leading to erosion of its funds, there is threat
to its financial stability.

3. FACTORS AFFECTING SICKNESS

Industrial sickness cannot be attributed to any single or simple cause but may be the
result of a combination of a number of allied causes.
1.1 Management skill:
Lack of professional management or experienced management and the existence of
hereditary management leads to sickness. Inefficient and disorganized management
leads to the inability to detect sickness while it's happening.
1.2 Education:
People with no college education who start a business have a greater chance of failure
than people with one or more years of college education.
1.3 Capital:
Poor financial planning, lack of adequate capital, poor management of working
capital, ineffective financial control and other financial problems may cause sickness
in a small-scale unit.

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1.4 Unprofitable business model
In the end, this is the sum total. Fail to accurately
achieve product/market fit where money gets made, and
the business fails. Entrepreneurs can actually have each
of the three above reasons solved, but still miss the
mark with the business model.

Causes of sickness we can mainly divided into two,

● Internal Sickness
● External Sickness

4. INTERNAL CAUSES OF SICKNESS

4.1 Easy approval granted for small scale industries:

It is very easy for SSIs to get approvals without

proper screening, and a lack of care of profitability
from the unit leads to sickness.

4.2 Implementation:
Sometimes acquiring business licenses and sanctions take a lot of time. Leading to the
current market for the product drying up and the business venture failing
4.3 Financing problems:

A growing shortage of working capital

appears to be a real constraint. The
equity base of many small-scale units
is very weak and slight disturbance in
the market puts them into trouble and
turns them into sick units.

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 4.3.1 Lack of financial planning:

The short-term financial requirements are met either by investing their own
funds or by raising working capital loans and long-term requirements are met by
raising long term loans. Each mode of raising finance has a different rate of
interest that is to be repaid, so an entrepreneur has to be aware of the optimum
mix that would maintain the economic viability. Many first-generation
entrepreneurs lack the knowledge to do this
4.3.2 Diversion of funds:

Some companies lack the financial discipline to use their long-term funds and
short term funds for their respective needs. They mix the two up and it leads to
sickness.
4.4 Technical causes:

Small entrepreneurs cannot afford to take technical guidance from experts in

choosing proper machinery. An improper choice of technology, unsuitable product
mix and single product technology contribute to industrial sickness. Small scale
units have to upgrade and update their technology. There is a misconception in the
minds of entrepreneurs that modernization and upgradation of technology involves
costly equipment and labour reduction but they fail to see the other side of the coin
that initial investment cost may be high but this investment would ultimately result
in long term benefits with higher and consistent quality, higher productivity
achievements etc. Thus a lack of adaptation of modern equipment will lead towards
industrial sickness.

4.5 Lack of management skills

The most important internal cause of sickness
is mismanagement. Faulty managerial
decisions regarding production, finance,
marketing and personnel and poor control can
ruin a business.

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4.6 Marketing problem:

In the modern world getting to know yourself and then getting to know you is one of the
most essential parts of a business venture. This is where marketing comes into play. The
dynamic nature of the market and the amount of competition means that to ensure
successful product sales marketing is essential. Failure to do so results in the product
failing. The most common failures in marketing can be seen as.
● Lack of quality and standardization
● Ignorance of potential markets
● Poor designing and finishing

5. EXTERNAL CAUSES OF SICKNESS

When the reasons for a business failing are those which cannot be controlled by the
company itself, it is known as the external causes of industrial sickness.

The most common among them are

a. Infrastructure deficiency:

SSIs’ productivity usually depends on the availability of imported inputs. So, when
the availability of inputs like raw materials, power, skilled man power, finance,
credit and transport at reasonable prices it causes a disturbance in the production
schedule, thus leading to sickness
b. Government related issues:

Excessive restrictions and government control of capacity utilization, location,

product mix, product quality, prices, distribution etc., stand in the way of smooth
functioning of the industrial units and often result in their sickness.

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Changes in government policies like increase in tax or change in labour laws. An
example of this is the demonetization and how it affected our economy. Since SSIs
usually depend on cash trade, the sudden disappearance of high value currency
affected a lot of local supply chains.

c. Rapid globalization:

Unregulated Globalization results in

MNCs pulling the customers away from
local businesses. For example, the arrival
of companies like Flipkart and Amazon
pulled almost all of the mobile phone
market away from local shops.
d. Cataclysms:

Natural calamities such as drought, floods, earthquakes, accidents and war etc.,
may turn some industrial units sick and unviable.

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6. REMEDIAL MEASURES TO CURB INDUSTRIAL SICKNESS

Sickness in small scale industry is not a sudden phenomenon. The best time to identify
and cure the sickness at its initial stage. We need to cure and prevent the cause of
sickness. When it comes to causing lack of money is the one the main reason why small
business fails. And proper funding is required to purchase the latest equipment and tools
for business. We need money for building a business, scaling business, and growing a
business. In order to get funds, we need some financial assistance, here some programs
which provide loans for small scale industries.
6.1 Financial management

6.1.1 Cash
It is very important to know how money comes in and how it is being spent. We need
to ensure the bill collection payments on time because it will help us to stay on track.
And it also helps to plan emergency funds.

6.1.2 Start-up cost:

It is the total sum of one- time expenses like land, machineries, building and
running costs like rents and pay-checks.
6.1.3 Break-even point:

In order to get the profit, we need to know how much products we need to sell and
what price we need to sell them at. To understand this, we need to know the break-
even point. Break-even point is the point at which sales will cover all the expenses.
Break-even point allows us to know the level of sales we need in order to gain
profit.
6.2 Taxes

There is no fairness when it comes to business. We all know amazon pays zero
corporate taxes because amazon incorporated in a direct tax-free location called
Caymanislands. Just like that, Indian giants like flip-kart are incorporated in
Singapore. Because of this more than 8000 Indian businesses are incorporated in
Singapore. Because of that when it comes to countries with ease of doing business
Singapore ranks 2nd and India ranks 63.

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There are some ways to reduce the taxes legally. For that we need to hire some family
members who have no source. They don't need to work for us. And we don’t need to pay
them too. We are making a fake pay-check of 2.5 lakhs to avoid any tax liabilities. By
doing so we can reduce our taxes because we are spending more cash for business.
Investing more in marketing by doing some can reach and find new customers and
meantime we can reduce the taxes because marketing expenses are eligible for tax
deduction.

6.3 Location

Deciding where to locate business is very crucial. In most cases it will be a city location.
This will attract more young and international people. And if it is a city location then we
will get more access to new markets, customers and resources. And transportation will be
much more cost effective. Even if we are buying some land for business, it will be a
great real estate investment for the future
6.4 Marketing

Marketing is very crucial for business. Back in the old days marketing used to
introduce our product to people but now things have changed. We need to make a
product according to the needs of the customer. In other words, we need to analyze the
market before thinking about the idea of a product. We need to build a prototype to
make sure it meets the needs of customers and we need to test that product in the
market. And after analyzing the situation we can launch our product in the real market.
In-case if we are not able to do all those things, we can outsource it to a marketing
agency.

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7. LIQUIDATION

Liquidation or winding up is a legal term and refers to the procedure through which
affairs of a company are wound up by law.
Winding up of a company has been defined in the Companies act 1956.

An administrator called liquidator is appointed and takes control of the company,

collects its assets, pays its debts & finally distributes any extra amount amongst the
members.
Voluntary liquidation is when a company decides to dissolve itself on its own terms, as
approved for shareholders of the company. No reason for operating, not feasible to operate
anymore.
7.1 Compulsory liquidation

Court-based procedure under which the assets of a company are realized and
distributed to the company’s creditors.

7.2 Government Involvements

Certain involvements from the government’s side should be there to prevent

sickness such as reviewing of the financial statements periodically.

7.2.1 Features of these guidelines which was issued on October 1981 are as follows:

● Monitoring system of the financial institutions will be strengthened so as to take

countermeasures to prevent initial stages of sickness.
● The administrative ministries in the government also play a central role
in monitoring the sickness & coordinating revival of sick units.
● In case of sickness elevating the financial institutions will take management
responsibly as well. The Ministry of Finance will have to issue guidelines
for management.
● If the banks and financial institutions fail to prevent sickness, they will go with
the outstanding dues 116 which is nationalizing the unit.
● If it's decided for nationalization, its management will be taken under Provision
of Industries(development and regulation) Act 1951 for a period of 6 months for
necessary steps.

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 8. REHABILITATION
Rehabilitation is a process we take into consideration while attempting to save or better
yet rehabilitate an industrial unit which is sick to the point that it is on the verge of
collapse. The idea behind this is to detect the sick companies in time and take the correct
measure to revive them -if possible, or liquidate them -if not.

To do this the Government of India has established the Board for Industrial and Financial
Reconstruction (BIFR) in January 1987 under the provision of SICA (Sick Industrial
Companies Act) of 1985.
Its purpose was:

● To detect the sick companies and provide an opportunity for the revival of the
company. 2. To rehabilitate the sick units if it is feasible or to help them with the
winding-up scheme.
● To expedite the procedure of winding up of the sick company if there is no
chance for the revival of the sick company.
● To curb the wastage of resources of public and private sectors as the economy of
the country is affected.
● To safeguard the workers of the sick units as far as possible.
● Loopholes in the act were exploited by the management to gain the benefits and
raise the funds. Amendments were made to stop the misuse of loopholes.

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By revival, it was expected that idle investments in sick units would become productive
and by closure the locked-up investments in unviable units would get released for
productive use elsewhere.
8.1 FAILURE OF SICA

SICA provided a lot of companies with loopholes that allowed them to get out of
legal trouble and debt, mainly Section 22- it dealt with moratorium and the faults in
this section allowed the companies to drag on court processes and get financial aid
for false reasons.
8.2 COMPANIES ACT

The Ministry of Corporate Affairs has formulated the framework for Revival and
Rehabilitation of Sick Companies under the Companies Act. This framework
intends to timely detect the sickness and take appropriate measures for revival of
sick companies. In this article, we look at the Revival and Rehabilitation of Sick
Companies in detail.

8.2.1 Objectives:
The objectives of the Revival and Rehabilitation of Sick Companies are listed below:

● To enable sick companies to seek relief and concession to revive over difficult
financial times.
● To assess the economic viability of sick companies and rehabilitate them.
8.2.2 Determination of Sickness of Company:

The company is assessed to be sick on demand by the creditors of a company

representing 50% of the amount of debt under the following circumstances:
● Any company has failed to pay the debt within 30 days from the issuance of
notice by the creditors.
● Any company has failed to secure the debt received from the creditors.

8.2.3 Overview of the Process:

Once the company is determined to be a sick company, the application can be filed
by the creditors to the tribunal in the prescribed format. The tribunal would make
decisions within 60 days from the date of submission of application.

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Once the tribunal is satisfied that a company has turned into a sick company, and it is in
the state to repay its debts, within a specified time, then the order from the tribunal to the
company is made to repay its debts.
8.2.4 Application for Revival and Rehabilitation:

Any companies determined as the sick company can make an application in the
prescribed format to the tribunal in order to take necessary steps to be taken for its revival
and rehabilitation and the application has to be accompanied by the following documents:
● Audited financial statements of the sick company relating to the immediately
preceding financial year.
● The draft of the scheme for revival and rehabilitation of the company in the
prescribed format.
● The above-mentioned documents and particulars have to be duly authenticated
in such manner, along with such fees as prescribed.
Note: The application has to be made to the tribunal within 60 days from the date of
identification of the company as a sick company by the tribunal under the Companies
Act, 2013.
8.2.5 Appointment of Interim Administrator:

Upon submission of application, the tribunal would fix a date of hearing and
appoint an interim administrator who should appoint a meeting with creditors of the
company within 45 days and prepare a draft of the scheme for revival and present it
before the tribunal within sixty days from the meeting.
In case of no draft, the scheme is provided, then the tribunal would assist the interim
administrator in taking over the management of the business. The full assistance in
coordinating the interim administrator would be provided by the Director or
Management of the company.

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8.2.6 Committee of Creditors:

The interim administrator will appoint a committee of creditors such number of

creditors would not exceed seven, and these members should be present in all the
meetings, and the interim administrator would direct all the directors, promoters, key
managerial personnel of the company to attend the meeting and furnish the
information whichever is required and necessary.
8.2.7 Order of Tribunal:

If the tribunal has approved the report passed by the interim administrator stating that it
is not likely to revive and rehabilitate the sick company, then the tribunal would take
the following steps:
● In case the revival and rehabilitation of the sick company is not possible, the
tribunal would order that the proceedings for the winding up of the company be
initiated.
● In case of revival and rehabilitation of the sick company is possible, the tribunal
would appoint a company administrator for the company to prepare a scheme for
revival and rehabilitation of a company by adopting certain measures.
8.2.8 Scheme of Revival and Rehabilitation:

A revival and rehabilitation of sick industries scheme will be prepared by the

company administrator which includes measures like proper management of the
sick company, financial reconstruction of the sick company, lease or sale of a part
of any assets, amalgamation of the sick company with another company or another
company with the sick company, takeover of the sick company by solvent
company, rationalization of managerial personnel.

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8.2.9 Scheme of Revival and Rehabilitation:

A revival and rehabilitation of sick industries scheme will be prepared by the

company administrator which includes measures like proper management of the
sick company, financial reconstruction of the sick company, lease or sale of a part
of any assets, amalgamation of the sick company with another company or another
company with the sick company, takeover of the sick company by solvent
company, rationalization of managerial personnel.
8.2.10 Sanction of the Scheme:

The scheme prepared by the management of the company should be placed before
the creditors of the sick company in a meeting for their approval within the period
of 60 days. If the scheme is approved by the secured creditors and then it would be
examined by the tribunal and a copy of the scheme draft with modifications made
by the tribunal would be forwarded to the sick company for the suggestion. Then
the tribunal would pass the order within 60 days sanctioning the scheme on receipt
of the scheme.
8.2.11 Winding up of a Company:
If the revival and rehabilitation scheme is not sanctioned by the secured creditors and
the administrator has to present the report within 15 days stating the same, the
tribunal would order for the winding up of the company.

8.3 Rehabilitation and Insolvency Fund:

A fund which is known as the Rehabilitation and Insolvency Fund will be allocated
for the purposes of revival, rehabilitation, and liquidation of the sick companies.
8.4 Penalty:
In case of providing a false statement
or violating any order made the
tribunal or the appellate tribunal would
be punishable with imprisonment for a
term of seven-year or more along with
a fine of Rs.1 lakh.

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9. TRAINING

Due to globalization, negative impact is affected on small scale industries as they don’t
have the technology to multinational companies which leads the small scale industries
into sickness. This training plan would be beneficial for any sick small scale unit. It can
improve any sick unit’s poor management skills and would try to sell more products.
Training programs improve the nation’s economic growth. The government must
implement many corrective measures to revive the small scale unit. As in India, the Board
for Industrial and Financial Reconstruction (BIFR) is the prime motive for revival for sick
small units and also for maintaining growth in productivity and employment and for
technology up-gradation.

10. CONCLUSION
Small Scale Industries (SSI) play a vital role in the economic development of a country
because it generates employment and becomes an economical backbone of any country.
But as the process of globalization has opened the small scale industry sector poses
certain challenges. So without any innovation or learning technique small scale industries
cannot take place for its survival and growth. Small Scale entrepreneur need to adopt a
quality management system in their industries with a point of view of producing quality
product to the customer satisfaction and providing better working condition and necessary
economic security in form of minimum living standard and work culture should be
developed in a manner such that elimination of different types of waste is possible which
would be over production, transportation, processing, defective production waste.
Business now has an opportunity to transform individuals and organizations into vibrant
and competitive entities. Industries which cannot generate surplus can neither have any
place in our country nor can they achieve the goal of a more egalitarian society. It is
through productive endeavors and mutual cooperation of those engaged in industry and
agriculture.

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