PART I.

ENTREPRENEURSHIP ORIENTED TO BUSINESS

CHAPTER ONE: INTRODUCTION TO ENTREPRENEURSHIP MINDSET

1.0 Introduction

Any given economy needs both the government and the private sector to grow. The needs of the country cannot
be feasibly catered for by the state on its own Individuals also need to establish themselves as key components
in any healthy economy. A Big Part of their role is reflected in the effort they put in business creation and
management in Entrepreneurship. People hold mixed feelings about entrepreneurs; there are even unavoidable
myths about the whole concept.

Entrepreneurship-Scope and Meaning

The concept of entrepreneurship can be defined in several ways. As the following definition is oriented to
business perspective, it is adequate for this course:‖ Entrepreneurship is the creative activity where materials,
capital, technology and labour are mobilized to offer marketable innovative products and services to
customers‖.

The concept of entrepreneurship is further refined when principles and terms from a business, managerial, and
personal perspective are considered. In particular, the concept of entrepreneurship from a personal perspective
has been thoroughly explored in this century. The exploration is reflected in the following three definitions:

In almost all of definitions of entrepreneurship, there is agreement that we are talking about a kind of behavior
that includes:
(1) Initiative taking,
(2) The organizing and reorganizing of social and economic mechanisms to turn resources and situations to
practical account,
(3) The acceptance of risk and failure

For economists, an entrepreneur is one who brings resources, labor, materials, and other assets into
combinations that make their value greater than before, and also one who introduce changes, innovations and
new order.
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For psychologists, such a person is typically driven by certain for

ces – the need to obtain or attain something, to experiment, to accomplish, or perhaps to escape the authority of
others.
For business person, an entrepreneur appears as a threat, an aggressive competitor, 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 finds better ways to utilize resources, reduce waste, and produce jobs others are
glad to get.
Entrepreneurship is the dynamic process of creating incremental wealth. The wealth is created by individuals
who assume the major risks in terms of equity, time, and/or career commitment or provide value for some
product or service. The product or service may or may not be new or unique, but value must somehow be
infused by the entrepreneur by receiving and locating the necessary skills and resources.
Although each of these definitions views the entrepreneur from a slightly different perspective, they all contain
similar notions such as newness, organizing, creating, wealth and risk taking. Yet each definition is somewhat
restrictive, since entrepreneurs are found in all professions: education, medicine, research, law, architecture,
engineering, social work, distribution and the government.

To include all types of entrepreneurial behavior the following definition of entrepreneurship will be the
foundation:

Entrepreneurship is a process of creating something new with value by devoting the necessary time and effort,
assuming the accompanying financial, psychic, and social risks, and receiving the resulting rewards of
monetary and personal satisfaction and independence.

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This definition stresses four basic aspects:

First, Entrepreneurship involves the creation process- Creating something new of value. The creation has to
have value to the entrepreneur and value to the audience for which it is developed. This audience can be:

(1) The market of organizational buyers for business innovation

(2) The hospital‘s administration for a new admitting procedure and software

(3) Prospective students for a new course or even college of entrepreneurship, or

(4) The consistency for a new service provided by a nonprofit agency.

Second, Entrepreneurship requires the devotion of necessary time and effort. Only those going through the
entrepreneurial process appreciate the significant amount of time and effort it takes to create something new and
make it operational.

The third, The third part of the definition involvers the rewards of being an entrepreneur. The most importance
of these rewards is the independence, followed by personal satisfaction. For profit entrepreneurs, the monetary
reward also comes into play. For some profit entrepreneurs, money becomes the indicator of the degree of
success achieved. Assuming the necessary risks is the final aspect of entrepreneurship. Because action takes
place over time and the future is unknowable, action is inherently uncertain. This uncertainty is further
enhanced by the novelty intrinsic to entrepreneurship actions such as the creation of new products, new
services, and new ventures and so on. Entrepreneurs must decide to act even in the face of uncertainty over the
outcome of that action. Therefore, entrepreneurs respond to, and create, change through the entrepreneurial
actions, where entrepreneurial action refer to behavior in response to a judgment decision under uncertainty
about a possible for profit.

Whether from economic, psychological, business or layman‘s perspective, we all tend to agree with this:

 An entrepreneur is an innovator or developer who: recognizes and seizes opportunities, converts

these opportunities into commercial ideas, adds value through time, effort, money or skills, assumes the
risks and realizes rewards from these efforts.

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  Entrepreneurship is therefore referred to as the process of creating something new with value by
devoting the necessary time and effort, assuming the accompanying direct /indirect rewards and risks.

 It is also a process by which individuals pursue opportunities, and put the respective ideas into useful
practice.

Entrepreneurship role in the economic development

Economic growth and development

Increasing per capita output and income

Initiating and constituting change in the structure of business, trade, industry and society.

Income and employment generation

Developing new products (or services) for the market and stimulating investment

Bridging the gap between science and the market place

Formation of cartel/alliances: This strengthens small firms/very young enterprises.

Social Responsibility and Political stability

Creation of wealth and Paying taxes

Some myths about Entrepreneurs

 Entrepreneurs are born, not made?

-Most research indicates that entrepreneurs are not genetically different from other people.

-The environment, life experiences, and personal choice influence what one does.

However, there are personality traits and characteristics commonly associated with entrepreneurs.
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  Entrepreneurs are gamble and take big risks

The idea that entrepreneurs are gamblers originates from two sources:

- Entrepreneurs typically have jobs that are less structured; they face a more uncertain set of possibilities and
challenges than managers

- Entrepreneurs have a strong need to achieve and often set challenging goals, a behavior that is sometimes
equated to high risk taking.

However, good Entrepreneurs are usually moderate risk/calculated risk takers as are other people.

 Entrepreneurs are motivated primarily by money?

- It is true that entrepreneurs seek financial rewards; however, money is rarely the primary reason entrepreneurs
start new firms.

- Money is a resource but not an end in itself

Evidence shows a good number of people who started their own business, were not primarily seeking money,
but their independence.

 Entrepreneurs should be young and energetic:

- Although it is important to be energetic, investors consider the entrepreneur‘s team as a major criterion for
funding.

- To date both young and older individuals are being attracted to the entrepreneurial process

Many people turn to entrepreneurship after retirement

 Entrepreneurs love the spotlight?

Some entrepreneurs are showy, however, the vast majority of them do not attract public attention.

Many even avoid public notice

 All entrepreneurs need is luck:

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- Being at the right place in the right time is always an advantage, but luck happens when ―preparation meets
opportunity”

- What appears to be luck should always be matched with preparation, determination, desire, knowledge and
innovativeness.

Employees versus Entrepreneurs

Most people around the world earn money by working in business. Business is the buying and selling of
products or services in order to make money.

A product is something that exists in nature or made by human being. It is tangible, meaning that it can be
touched.

A service is work that provides time, skills or expertise in exchange for money. It is intangible, you cannot
actually touch it.

Entrepreneur assumes risk. This makes them different from employees who are people who work for someone
else. Both may make decisions, but only the entrepreneur is directly affected by the consequences of those
decisions. A manager may decide to keep the business open until midnight during the week. If the addition
hours bring in customers and increase profits, manager may be praised by the owner. He may even get a raise.
However, manager won‗t directly receive any of the profits because he is an employee. The earnings will flow
to the owner.

Some who earns a living by working for someone else‘s business is an employee of that business. There are
many kinds of employees. For instance, at INYANGE Industries ltd , for instance, some employees process and
produce Inyange products, others sell those products and some manage the company. But employees all have
one thing in common – they do not own the business; they work for others who do. They know how much
money they can earn, and that amount is limited to salary, plus bonuses and any stock options they may receive.

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Some people start their own businesses and work for themselves they are called entrepreneurs. Entrepreneurs
can be anyone – willing to embrace problems as opportunities, anyone who chooses to create economic all
social value. Entrepreneur recognizes an opportunity to start a business that other people may not have noticed –
and jump on it. ―A skilful entrepreneur can shape and create an opportunity where others see little or nothing –
or see it early or too late”: Said Jeffly Timmons in the preface of Venture Creation: Entrepreneurship for 21st
century.

Why being an entrepreneur?

Some people start their own businesses and work for themselves they are called entrepreneurs. Entrepreneurs
can be anyone – willing to embrace problems as opportunities, anyone who chooses to create economic all
social value.

Entrepreneurs solve problems. These problems often have social and economic impact in the communities and
regions in which they are implemented. Entrepreneurs worldwide address a broad range of wants and needs.
Entrepreneurs work to limit risk through research as you will do. They take action, as you will do as you get
into community to understand the opportunities that surround you!

Entrepreneurs put a great deal of time and effort into launching their own businesses. While establishing a
business, an entrepreneur may also pour all his or her money into it. He or she may not be able to buy new
clothes or a fancy car, or go on vacation, or spend much time with family until the business becomes profitable
and starts generating cash.

If so much work and sacrifice are involved, why being an entrepreneur?

The entrepreneur is working for the following rewards:

1. Self Employment: The process of entrepreneurship eventually brings self employment. The entrepreneur
becomes self employed when he/she derives livelihood from his/her business venture - Also employs others.
The entrepreneur needs to be prudent when appropriating the rewards, some of the profit should be reinvested
into the business.

2. Control over time, do you work better at midnight than at 8 A.M? If your own business, you will have
control over how you spend your time by the type of business it is. Are you the type of a person who would
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rather really work hard for two weeks nonstop and then take a break? If you are an entrepreneur you can. You
can also choose to hire other people to perform tasks that you do not like to do or are not good at, so you can
stay focused on what you do best.” This shows how entrepreneur enjoys the reward of being his/her own boss”.

3. Fulfillment, successful entrepreneurs are passionate about their businesses. They are excited and fulfilled by
their work and they are almost never bored. If something about running the business is boring to them and they
have the income to support it, they can hire someone else for that task.

4. Creation/ownership, Entrepreneurship is a creative endeavor, entrepreneurs put their time into creating
something that they expect will survive and become profitable. Entrepreneurs own the businesses that they
create and the profit that the businesses earn. Ownership is the key to wealth. Your goal is to create a business
that will create a continuing stream of earnings. Eventually, you may be able to sell that business for a multiple
of those earnings. That is how entrepreneurs create wealth.

5. Control over compensation, Entrepreneurs choose how and when they are paid. As owner of your company
you can decide to – pay yourself a salary-a fixed payment made on regular intervals, such as every week or
every month. No matter how much time you put in, the salary remains the same.

- Pay yourself a wage- a fixed payment per hour; Take a share of the company‘s profit. This payment is called
as dividend; Take a commission on a very sell you make. If you decide to pay yourself 10% commission and
you sell one of your products for 2,000 Rwf your commission on the sell would be 200 Rwf.

6. Control over working conditions, as an entrepreneur you can create a work environment that reflects your
values. If you support recycling, you can make sure your company recycles. You also evaluate your own
performance. No one else has power to fire you.

Types of Entrepreneurs
Researchers classify entrepreneurs in several categories, and these vary according to the viewer‘s perspective:
Bruce Barringer classifies them as follows:
Idealist: He/She likes innovation and enjoys working on something new or creative or something personally
meaningful.

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Optimizers: Content with the personal satisfaction of simply being a business owner. Being a business owner is
what one mostly feels important.
Sustainers: People who like the thought of balancing work and a personal life. Most often they do not wish the
business to grow too large where it will cut into their personal life too much.
Hard Workers: Persons who enjoy putting in long hours to build a larger more profitable business. They like the
challenge it presents.
Jugglers: Like the concept that the business gives them a chance to handle everything themselves. They are usually
people with lots of energy and exist on the pressure of meeting deadlines, paying bills and of course making payroll.
They like achieving what seems to have defeated others.

Common traits or characteristics of entrepreneurs

Decisive Energetic
Has a strong work ethic Is a moderate risk taker
Is a networker Lengthy attention span
Execution intelligence Customer focus
Open minded Listening skills
Ability to learn from mistakes Discipline
Marketing Skills Human Skills
Technical Skills Professionalism
Team Player Courtesy
Good planner Researcher
Attentive Conceptual skills
Professionalism Team Player
Courtesy Good planner
Researcher Attentive
Conceptual skills
Achievement motivated Optimistic disposition

Alert to opportunities Creative

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Entrepreneurs versus Managers

Entrepreneurship is the initiation of change, a creative act (creating a new business), while Management
involves controlling and planning for a business (running a business)

Entrepreneurship and management are two different activities. Starting and running a small business involves
both entrepreneurship and management. When an entrepreneur develops a new product, he/she is initiating
an innovative change and acting as an entrepreneur. When the entrepreneur starts producing some products,
he/she begins to Act like a manager, i.e. planning, coordinating, leading and controlling the production and
business operation. Owning or running a business does not make a person an entrepreneur. The key to
entrepreneurship is creativity, innovation and being an agent of change. Many business owners are caretakers
who run a business, which they have copied, from somebody else. If they buy an existing business, they
continue to operate it in the same way as the previous owner. In this role they are managers rather than
entrepreneurs. A business owner can be called an entrepreneur only when he/she operates in one of the
following five areas:
Introduces a new or improved product/service;

Introduces a new production or marketing method;

Opens up a new market; Uses a new source of supply of raw materials or other components; or creates a new
organization.

The following table shows a clear distinction concerning the two above concepts:

ENTREPRENEURS MANAGERS

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Risk taking: An entrepreneur assumes risk. By contrast, the manager does not share in business
risks.

A manager is a salaried person and is not independent

Status: An entrepreneur is self-employed and is his/her
of the employer.
own boss.
A manager depends more on human relations and
An entrepreneur needs intuition, creative thinking and
situational capabilities.
innovative ability
A manager starts a career as an implementer of a
An entrepreneur starts a career with a new idea
predetermined idea.
Entrepreneurship involves combining resources to
Management involves combining or coordinating
initiate changes in production,
resources
Entrepreneurship is a discontinuous phenomenon.
While management is an ongoing or continuous
process.

Entrepreneur organizes and operates an enterprise for A manager organizes and operates the enterprise as per
personal gain. the decisions of the entrepreneur and works for salary.

The gains of an entrepreneur are uncertain and On the contrary the salary of a manager is fixed,
irregular and can at sometimes be negative. regular and can never be negative.

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Entrepreneurship vs Knowledge

Entrepreneurial opportunities tend to appear within the context of a specific time and place, so entrepreneurial
opportunities are more likely to reveal themselves to people who are at the right ―time and place” to make the
discovery. Everyone is not equally likely to notice an entrepreneurial opportunity: many people may be at the same
location at the same time, but one person may notice it while it remains unseen by others.

Entrepreneur recognizes an opportunity to start a business that other people may not have noticed – and jump on
it. ―A skilful entrepreneur can shape and create an opportunity where others see little or nothing – or see it
early or too late”: Said Jeffly Timmons in the preface of Venture Creation: Entrepreneurship for 21st century.

As Kirzner describes it, entrepreneurs happen to notice what nobody has noticed before. Whether an
entrepreneurial opportunity actually is noticed depends on many factors, but those factors can be divided into
two general categories: factors specific to the individual and factors related to the individual‗s economic
environment. Many individuals might observe the same information revealing an entrepreneurial opportunity,
yet only a few may have the wisdom to actually act on it.

Information, knowledge, and wisdom

Information refers to data that an individual can collect. Individual can search for information, and may be aware of
information they are lacking that, if attained, could help them achieve their goals. For example, people might read
newspaper looking for information about prices for goods they intend to buy. They may be unaware of other
information that would help them if they had it.
Knowledge refers to the incorporation of information into a framework where it can be used for decision making.
Wisdom refers to the use of knowledge to make good decisions. Because many factors must be weighed to arrive at a
decision, and because some of those factors may be difficult to articulate or weight in a mathematical sense, many
people may have the same knowledge, but even with identical knowledge, some will make better decisions than
others. In most instances, acting on an entrepreneurial insight is a risky undertaking. The well -known fact is that the
most new businesses fail within their first five years, illustrating that in many cases, what appears to some as an
unexploited profit opportunity turns out not to be profitable after all. The entrepreneur must be in a position to turn
that information into knowledge, and to apply wisdom to that knowledge .The setting within which information

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reveals itself plays an important role in whether the information about a profit opportunity is transformed into
knowledge, and then wisdom, leading to action to exploit the opportunity on the part of the entrepreneur.

A Broad Entrepreneurial Process

1. Deciding to become an entrepreneur
2. Developing successful business ideas:
 Recognizing an opportunity and developing ideas.
 Feasibility analysis
 Writing a business plan
 Industry and competitor analysis
 Developing an effective business model
3. Moving from an idea to an entrepreneurial firm
 Preparing the proper legal and ethical foundation
 Building a new venture’s team
 Getting financing or funding
4. Managing the resulting enterprise
 Develop management style and structure
 Understand key variables for success
 Identify problems and potential problems
 Implement control systems
 Develop growth strategy

Characteristics of the successful entrepreneurs

It is essential to delineate the characteristics of the successful entrepreneurs. Entrepreneurial success is what
makes a person to be branded as ―entrepreneur; Wickham (1998) expounds some characteristics of the
successful entrepreneur as follows:
1. Hard work: entrepreneur put a lot of physical and mental effort into developing their ventures. They often
work long. To an entrepreneur, time is the most valuable asset. Balancing the needs of the venture with other
life commitments such as family and friends is one of the great challenges, which the entrepreneur faces.

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2. Self-starting: entrepreneurs do not need to be told what to do. They identify tasks for themselves and then
follow them through without looking for encouragement or direction from others.

3. Setting of personal goals: entrepreneurs tend to set themselves clear and demanding goals. As a result,
entrepreneurs tend to work to internal standards rather than look to others for assessment of their performance.

4. Resilience: not everything goes right all the time. In fact, failure may be experienced more often than
success. The entrepreneur must not only pick up after the things went wrong but learn positively from the
experience and use that learning to increase the chances of success the next time around.

5. Receptive to new ideas: however, the entrepreneurs must not be overly confident. They must recognize their
own limitations and possibilities that they have to improve their skills. They must be willing to revise their ideas
in the light of new experience.

6. Assertiveness: entrepreneurs are usually clear as to what they want to gain from a situation and are not
frightened to express their wishes. Being assertive does not mean being aggressive. Nor does it mean adopting a
position and refusing to budge. Assertiveness means a commitment to ―outcome or ―means. True
assertiveness relies on mutual understanding and is founded on good communication skills.

7. Information seeking: entrepreneurs are not, on average, any more intelligent than any other group. They are,
however, characterized by inquisitiveness. They are never satisfied by the information they have at any one time
and constantly seek more. Effective entrepreneurs tend to question rather more than they make statements when
communicating.

8. Eager to learn: successful entrepreneurs are always aware that they could do things better. They are aware
of both skills they have and their limitations, and are always receptive to a chance to improve their skills and to
develop new ones.

9. Attuned to opportunity: the successful entrepreneur is constantly searching for new opportunities. In effect,
this means that he/she is never really satisfied with the way things are any moment in time. The entrepreneur
uses this sense of dissatisfaction to make sure he/she never becomes complacent.

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10. Receptive to change: the entrepreneur is always willing to embrace change in a positive fashion that is to
actively embrace the possibilities presented by change rather than resist them.

11. Commitment to others: good entrepreneurs are not selfish. They cannot afford to be. They recognize that
value that other people bring to their ventures and the importance of motivating those people to make the best
effort they can on its behalf. This means showing commitment to them. Motivation demands an investment in
understanding how people think. Leadership is not just about giving people jobs to do; it is also about offering
them the support they need in order to do those jobs.

12. Comfort with power: entrepreneurs can become very powerful figures. They can have a great impact on
the life of others. Power can be one of the great motivators for the entrepreneur. Effective entrepreneurs are
aware of the power they possess and recognize it as an asset. They are not afraid to use it and never let
themselves be intimidated by it. However, the true entrepreneur uses power responsibly as a means to an end
and not as end in itself.

Personal qualities of the entrepreneur

There is no stereotype of an entrepreneur. Over the years entrepreneurs have displayed certain characteristics:
the fortitude to continue despite obstacles, the ability to cope effectively in ever-changing competitive
environments, a willingness to take risks while most people stand and talk, supreme confidence in their own
abilities, and the ability to identify business opportunities to which others are blind.
David McClelland researched the personality traits of entrepreneurs. According to him, the entrepreneurial
personality possesses the following characteristics:

Confidence in personal success. All entrepreneurs believe they possess the capabilities necessary for success.

Preference for moderate risks. Entrepreneurs are calculating risk takers. The entrepreneur thinks through the
opportunity and believes that the goal is reasonable and attainable.

Desire for responsibility. Entrepreneurs believe that they are in control of their lives and not external
circumstances like luck or coincidence. They have the desire to take responsibility for their actions.

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Energetic: Entrepreneurs are more energetic than the average person. They can do with less sleep and work
long hours. Most of them take good care of their bodies by keeping fit.

Identification of opportunities: Entrepreneurs are always looking for ways to improve existing products and
services. They are future people and less concerned with what happened yesterday.

Skill at organizing. Entrepreneurs seem to have the ability to put the right resources (especially people)
together

Will to achieve. This is a basic characteristic of all entrepreneurs. It is a fallacy that the entrepreneurs are
driven wholly by the desire to make money. Money is a symbol of achievement, a good way to show success.

Desire for immediate feedback. Entrepreneurs want to know how they are doing and constantly look for
reinforcement. They check the cash register at regular intervals.

Key elements for becoming a successful entrepreneur

1. Ethics and Values: Almost every entrepreneur is raw and weak at the time of start. He has little knowledge
and even meager resources. He is pitted against heavy odds like established players in the market who usually
have little respect for ethics. There is no denying that Ethics will win in long term; provided you survive that
long to benefit from that win. For short and medium term, it is ―hook or crook‖ attitude which brings business
success. There is no denying the fact that there are Tata, Infosys and Wipro business empires where almost
every brick is a hallmark of ethics, but the list probably is not very long. The list of unethical, and yet
successful, companies is rather long. There is no system of rating companies on ethical scale; else, the issue
would have never arisen.
2. Vision: rarely does an entrepreneur start with a 10 year vision. The vision, mission and all such management
jargons erupt only after a reasonable level of success is attained.
3. Innovation: I personally consider Innovation fairly low in the entrepreneurial element basket. Innovation
helps in achieving success in business whether it is 10 generations old business or an entrepreneur‗s new
enterprise. An entrepreneur is one who starts a business enterprise of which he had no previous experience.
Most entrepreneurs start with a routine business activity without any innovative idea. It may be as common a
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business as a pan shop. So, if a farmer‗s son opens a pan shop, there is no innovation but it is entrepreneurship.
Whereas, if a panwalla‗s son opens a new pan shop away from his father‗s shop, it is not even an
entrepreneurship. But yes, if he later finds a way to export his pan to some foreign country, there is innovation
of finding a new market for his product and it is entrepreneurship. He has gone into a territory which was new
to him and probably even to his trade.
4. Need for Achievement
5. Risk taking
6. Organizing Skills

Benefits of entrepreneurship
People Create their own destiny

People Make a difference

They Reach their full potential

They Generate impressive profits

Contribute to society and be recognized for their efforts

Do what they enjoy and have fun at it!

Contribute to the Economic growth and development

Initiate change in the structure of business, trade, industry and society.

Income and employment generation

Disadvantages/drawbacks of Entrepreneurship

Uncertainty of income -The entrepreneur is the last one to be paid

Risk of losing their entire investment

Long hours and hard work

Lower quality of life until the business gets established

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High levels of stress

Complete responsibility

Discouragement

External challenges of entrepreneurship

The economic cycles: recession (downturn or depreciation), boom, depression and recovery

Fluctuating interest rates

Interruptions in supplies

Labor market trends

Government regulations e.g. tax laws

Natural catastrophes

Personal challenges:

Financial risk of losing money

Career risk: unemployment when business collapses

Psychic risks: collapse of business can lead to depression and/or low self esteem.

Social risk: entrepreneur may give up social life which affects family and relations.

Lack of skills and experience. Inability to see the business through even when it is a good business opportunity.

Mismanagement. Misuse of resources, wastage of stocks,

Poor business ethics. Unfair business practices, conflict with the law

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FACTORS INFLUENCING ENTREPRENEURIAL DECISION
A person decides to do something either because something in that activity lures him or he takes it as option
instead of something else, ie, he is forced to do it by people or circumstances. The factors which attract a person
to become entrepreneur are called Pull factors and the factors that force him are called Push factors. Pull
Factors overall gains in terms of money. Status, security, future, etc as an entrepreneur are better than working
as an employee, he tends to turn an entrepreneur.

(a) Spotting an Opportunity: Many employees spot a business opportunity in the course of their work and
decide to exploit that opportunity rather than pass it on to their employer. Many employees buy unsuccessful
businesses at throw away prices from their former employers and turn them around.
(b) Government Policies: Governments very often formulate policies to promote certain business activity or
backward areas which offer tax concessions/holidays, cash subsidies, cheap land, etc, which improve success
and profit prospects.
(c) Motivation from biographies or success stories.
(d) Influenced by Culture, Community, Family Background, Teachers, and Peers.

Push Factors

(a) Job Dissatisfaction: Many people start their own venture because they feel dissatisfied with their existing
jobs, boss, work, and environment.

(b) Relocation: Repeated or especially unhappy relocation sometimes prompts some people to
entrepreneurship.

(c) Joblessness: This is the biggest source of micro level entrepreneurships. Many parents help their
academically poor children, who fail to find a job, to start their own micro ventures. But success rate in such
ventures is poor. The very traits responsible for their academic failure lead to business failure.

(d) Lay off: Layoffs often lower the market value of an employee to half. Thus, if a person is out of work and
he is unable to find a suitable job for him, he might think of starting his own business.

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(e) Retirement: Many retired, but physically and mentally fit, people start their own business either to
supplement their pension/savings or just to keep themselves gainfully occupied.

(f) Boredom: This is applicable to many ladies from well to do families. With their army of servants to take
care of home, they find an avenue to keep the boredom away and start ventures like boutiques, fashion
designing, etc.

(a) Perception of Advantages: If a person feels that he can earn better.

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CHAPTER TWO: IDENTIFYING BUSINESS OPPORTUNITIES AND DEVELOPING

SUCCESSFUL BUSINESS IDEAS

Introduction

Essentially, entrepreneurs recognize an opportunity and turn it into a successful business. An opportunity is a
favorable set of circumstances that creates a need for the new product, service or business. Many new
businesses fail, not because the founders did not work hard or weren‘t committed, but because the idea was not
good enough to begin with. Before getting excited about a business idea, it is crucial to understand whether the
idea meets the criteria for an opportunity. When it doesn‘t, it can lead to a disappointment.

Generating business ideas is the starting point for any new venture. The entrepreneur uses creativity and
innovation to address business opportunities in the market such as; unsatisfied needs of consumers, problem
from changes made to products or services, Changes in the environment.

IDENTIFYING BUSINESS OPPORTUNITIES

This is an attractive project in terms of adequate rate of return which motivates the entrepreneur to accept and
investment in it, such as; Favorable market demand or excess demand over existing supply available in the
‗[market; and adequate rate of return on investment which is generally equal to normal rate of return and risk
premium attached to that particular business opportunity.

An opportunity has a unique characteristic that distinguishes an ordinary idea.

An opportunity is an idea that is based on what consumers need or want and are willing to buy sufficiently often at a
high enough price to sustain the business. It is critical that the idea ― has legs to go on to success.

- How do entrepreneurs find opportunities to start new businesses?

- Train your mind to recognize business opportunities

- Let your creativity fly

- Not every business idea you have is an opportunity

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In the 1900‗s, the definition of entrepreneurship was expanded by adding that entrepreneurs create value ―by
exploiting an invention or, more generally an untried technological possibility for producing a new commodity or
producing an old one in a new way, by opening up a new source of supply of materials or a new outlet for products,
by reorganizing an industry and so on.

This definition describes five basic ways that entrepreneurs find opportunities to create new businesses:
Use new technology to produce a new product,
Use an existing technology to produce a new product,
Use an existing technology to produce an old product in a new way,
Find a new source of resources (that might enable the entrepreneur to produce a product more cheaply),
Develop a new market for an existing product.

The first step in becoming an entrepreneur is to train your mind to recognize business opportunities. The next step is
to let your creativity fly. For developing entrepreneurial instincts you should ask yourself such questions:
What frustrate me the most when I try to buy something?

What product or service would really make my life better?

What makes me annoyed or angry?

What product or service would take away my aggravation?

Not only fume about products or services that annoy entrepreneurs, but fantasize the products or services they would
love to have in their lives. Not every business idea you have is an opportunity.

There are five roots of opportunity in the marketplace that entrepreneurs can exploit. These are:

1. Problems that your business can solve

2. Change in laws, situations, or services

3. Inventions of totally new products or services

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4. Competition. If you can find a way to beat the competition on price location, quality, reputation, reliability, or
speed, you can create a very successful business with an existing product or service.

5. Technological advances. Scientists may invent new technology, but entrepreneurs figure out how use and sell it.

Objective identifying Business opportunities

-To evaluate possibilities of developing and utilizing physical resources of a region from technical and
economic point of view
- Study and examine small, medium and large industrial possibilities remembering requirement of the region.
The possibility must be technically feasible and economically viable
- Identify industries not based on local resources but can be established on economic basis and remembering
future requirement of the region
- Recommend by certifying usefulness of other possible industries
- Assess and estimate capital, labor, transport, power, fuel raw materials for the feasible industry
- Study short/long term development possibilities of the region with regard to agriculture, irrigation, forestry,
fisheries, minerals, labor etc
- Evaluate impact of achievement in financial resources, production, employment, initial requirement of capital
in development process.
The above require conducting assessment study.

Factors affecting identification of Business Opportunities

1 .Volume of internal demand- assess pattern of internal demand of proposed product/ service e.g. The higher
the level of income the higher is the demand in the market
2. Availability of industrial raw materials- this determines the business opportunities since it decides the level
of future production
3. Availability of internal resources-
i. Test the entrepreneurial personal capability to mobilize internal resources for expansion

ii. Examine the rationale as to what extent the internal resources can be utilized for future expansion
programme

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4. Facilities are expected to come easily. e.g. Government subsidies, incentives for industrial promotion

5. Feasibility of exports- export potentiality is an important criterion in measuring efficiency of a particular

industry. This increases the level of expected earnings.
6. Analysis of performance of existing units- this is to ensure success in identification of business
opportunities. E.g. analysis of employment position and potential, fixed and working capital, fixed assets and
product range, value addition through product processing, financial support, forms of organization structure.
8. Gathering information regarding proposed industry development- examine the nature of the product,
proposed additional capacity, expansion of an existing industry, form of expansion of new unit, capital
investment for establishing the new unit, additional requirement of power, employment and production.
9. Level of risks in the business- types of risks are;
i. Technical risks- risk of not knowing enough about technical processes and materials
ii. Economic risks- risks of market fluctuations and changes in relation to raw materials
iii. Social risks- risks inherent in the development of new relationships
iv. Environmental risks- risks resulting from environmental changes in the entrepreneurial work
as an outcome of the new activity.
Internal and external opportunities
Today, in the global market place, with ever-shortening product life cycles and low growth or even no growth
for some of the world‗s leading industrial nations, the crucial ingredients for entrepreneurial success are a
excellent entrepreneur with a first-rate management team and an excellent market opportunity. It‗s often said
that entrepreneurship is largely a matter of luck. That‗s not so. We do not say that becoming a great
quarterback, a great scientist, or a great musician is a matter of luck. There is no more luck in becoming
successful at entrepreneurship than in becoming successful at anything else. In entrepreneurship, it is a question
of recognizing a good opportunity when you see one and having the skills to convert that opportunity into a
thriving business. To do that, you must be prepared. So in entrepreneurship, as in any other profession, luck is
where preparation and opportunity meet.
Opportunities fall into two classes: internal and external. An internal opportunity is one that comes from inside
you or your organization, from a hobby, an interest, or even a passion. This may be the transformation of
strength into a business opportunity or it may be the resolution of a problem, such as creating a viable product
from scrap material. External opportunity in contrast, is generated by a noticeable outside circumstance that

24
makes you say to yourself, ―that would make a great business! The best business opportunities often combine
both internal and external factors.

Three Ways to Identify a Business Opportunity

They are: Observing trends, solving a problem, and Finding gaps in the marketable place.

1. Observing Trends. The first approach to identifying opportunities is to observe trends and study how they
create opportunities for entrepreneurs to pursue. P.E.S.T. factors are the most important trends Entrepreneurs
may wish to follow. Entrepreneurs can understand such trends by studying, analyzing and understanding how
they can be an opportunity. They can also do it by reading and understanding reports on such trends, produced
by researchers.

Economic trends

Increase or decrease in customer‘s disposable income

Drop or rise in interest rates

Rise or fall of unemployment

Who has money to spend? Women, men, teenagers, retired ….?

Etc.

Social Trends:

The way people live their lives and the products and services they need-How busy are the people?(What
facilities do they need?)-Changes in workforce diversity-Demographic changes.

Roles of different people-What do people do not want to consume.

Life styles

Etc.

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Technological advances. Recognizing how technologies can be used to help satisfy basic or changing human
needs ( Internet technology, Biotechnology( see Biogas), New uses of old technologies, and Adaptation to the
new/emerging technologies.

Political and Regulatory changes:

- Change in business registration procedures

- Environment regulation

- Management of public funds: E.g: Recent ban on printing – calendars, diaries etc in government institutions.

- Government policies on trade, and Government alliances and partnerships with other states

- Finding Gaps in the Market Place.

2. Solving a Problem

-Another approach to identifying opportunities is to recognize problems and find ways to resolve them.

- Problems can be experienced or recognized by people through: Their jobs, hobbies, or everyday activities….

- What do people complain about? At home, on holiday, in travel…

- Every problem is an opportunity.

3. Finding gaps in the marketable place

The third approach to identifying opportunities is to recognize a need that customers have that is not being
satisfied, by either large firms or small business entities.

- See cases where large hotels are offering exotic dishes vs. small restaurants offering Kiganda food.

- See a fitness centre for overweight women, 30 years and older.

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Creativity and entrepreneur

An entrepreneur is a process of being sensitive to problems, deficiencies, gaps in knowledge, missing elements,
disharmonies, identifying the difficulties, searching for solutions, making guesses formulating hypotheses about
deficiencies, testing hypotheses and communicating results. Thus it is creativity that enables the entrepreneur to
identify gaps and find ways to fill the gaps. Gaps can exist in markets as a result of; changes made to products
which resulted in a drop in consumer demand; unsatisfied consumer needs; weaknesses of competitors or
suppliers; changes in environment creating new needs e.g political/economic changes

In addressing the market gaps, the entrepreneur can use various techniques such as; identifying the needs using
analytical methods to ensure precise identification of the problem; transforming problems into opportunities that
will help the entrepreneur to look at the problem or a gap as opportunities that can be addressed. This aids the
entrepreneur in developing a business idea and finally, Strategic assessment where possible future outcomes
must be predicted and possible threats and solutions leading to most desirable results.

Creativity important asset in generating idea

Creativity as the process of generating a new idea, on an individual basis, the creative process can be broken
into five stages as follows:

Preparation: background, experience, and knowledge that an entrepreneur brings to the opportunity
recognition process.

Incubation: a stage during which a person mulls things over/thinks about them.

Insight: a solution to the problem is seen /found. Sometimes called the ―eureka‖ experience.

Evaluation: The solution is analyzed for its viability.

Elaboration: the idea is transformed into something of value.

Creative methods

Evolution: This is the method of incremental improvement. New ideas stem from other ideas, new solutions
from previous ones, the new ones slightly improved over the old ones. Many of the very sophisticated things we

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enjoy today developed through a long period of constant incrementation. Making something a little better here,
a little better there gradually makes it something a lot better--even entirely different from the original.

Synthesis: With this method, two or more existing ideas are combined into a third, new idea. Combining the
ideas of a magazine and an audio tape gives the idea of a magazine you can listen to, one useful for blind people
or freeway commuters.
For example, someone noticed that a lot of people on dates went first to dinner and then to the theater. Why not
combine these two events into one? Thus, the dinner theater, where people go first to eat and then to see a play
or other entertainment.

Revolution: Sometimes the best new idea is a completely different one, a marked change from the previous
ones. While an evolutionary improvement philosophy might cause a professor to ask, "How can I make my
lectures better and better?" a revolutionary idea might be, "Why not stop lecturing and have the students teach
each other, working as teams or presenting reports?"

Re-application: Look at something old in a new way. The key is to see beyond the previous or stated
applications for some idea, solution, or thing and to see what other application is possible.
For example, dishwashing detergents can be used to remove the DNA from bacteria in a lab; general purpose
spray cleaners can be used to kill ants.

Changing direction: Many creative breakthroughs occur when attention is shifted from one angle of a problem
to another. This is sometimes called creative insight.

Entrepreneur and Innovation

Innovation is finding new and better ways of doing new things that are commercialized. E.g. product changes,
process changes, new approach, to marketing, new forms of distribution. It involves ideas that are not new but
have never been rigorously pursued and results from organizational learning as much as from research and
development. Innovation involves investment in developing skills and knowledge in physical assets and
marketing efforts. It also results in competitiveness on an enterprise.

Types of innovations that results in increase in competitiveness are;

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- Developing new products for existing markets. Product development entails large scale research and
development expenditure e.g. innovation in beer market
- Developing new markets for existing products. This involves introducing present product or service in new
geographical areas or for specific demographic groups e.g. penetrating international markets.
- Developing new products for new markets. This is most costly because it involves both market research and
product research and development.
- Developing existing products for existing markets. This is changes made to existing products without
changing the product itself. e.g. change in packaging or distribution of the product.

Causes of innovation

-New customer needs/demands- this is when customers develop new needs or when their priorities change
significantly.
- The emergency of new industry segment- arise when a new distinct segment of an industry emerges/ or a new
way of regrouping existing segments is revealed i.e. new customers or new ways of reaching customers or new
ways of producing existing product.
- New management ideas or business theories
- New production techniques and New machines
- Changes in the external environment of the business
- Transition of business from small to large organization
- new technologies- e.g. design of a product, the way it is marketed, produced or delivered, ancillary services
provided
- Shifting input costs or availability- e.g. laboratory research cost, raw materials cost, transportation costs,
communication costs, media cost machinery, costs resulting in new use or new types of inputs.
- Changes in government regulations- e.g. in product standard, environmental controls, trade barriers

Make sure the following is looked at before wasting your energy into the feasibility analysis :

a. Strength of the Business Idea

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- Extent to which the idea takes advantage of an environmental trend, Solves a problem, addresses an unfilled
gap in the market place

- Timeliness of entry to the market

- Extent to which the idea adds value to its buyer or end user (Value refers to worth, importance or utility)

- Extent to which the customer is satisfied by competing products already available

b. Industry-Related issues:

Number of competitors

Stage of industry life cycle

Growth rate of Industry

Is the industry crowded?

Importance of industry‘s products and services to customers

Industry operating margins

c. Market &Customer Related issues

- Identify an emerging or underserved target market within a larger market

- Barriers to entry

- Purchasing power of customers

- Ease of making customers aware of a new product or service

- Growth potential of a target market

d. Financial Issues

- Initial capital Investment (Magnitude of the investment)

- Number of revenue drivers (Ways in which the company makes money

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- Financial Performance of Similar Businesses

- Ability to fund initial product or service development.

DEVELOPING BUSINESS IDEAS

Sources of Product/Service Ideas

1. Advertising of existing products and services-look through advertisements in local, national and
international magazine, newspapers, to formulate business ideas. That allows one to think of better ways to
meet needs advertised. E.g. develop new product, adapt product and make unique, use better message to sell
same product.
2. Needs and wants:
i. Investigate your own needs and of your relatives/ friends to generate new ideas
ii. Listen to complaints on products and determine what is wrong and to be improved.
Steps in matching needs and wants;

- List basic /generic needs that people may want to satisfy e.g. hunger, office equipment,etc…
- Think of as many ways as possible to satisfy the needs
- Take one need from the list and break into specific needs and identify ways of satisfying e.g. office equipment
into communication equipment, furniture, computers,
- Go through the list again and identify two or more needs which may occur together and identify ways on
which both can be satisfied.

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- Internal sources- changes that take place in organizations are the most important sources. E.g. changes in the
organizational structure e.g. downsizing- e.g. new product idea where the organization is ordering from external
supplier, can lead to new business idea, e.g outsourcing services, can lead to business ideas.
External sources- e.g. change in technology creating possibility of design of a new product or the way it is
marketed, produced or delivered, training people in new skills.

Methods for Generating Product/Service ideas

1. Accumulation of knowledge –extensive reading of magazines, newspapers, journals,

books , conversation with others working in various fields, attending workshops, and meetings, traveling
to other areas, all with the aim of gathering information to develop new business ideas

2. Observation:
i. Observe your environment/ market place/products and think of ways to offer better product/
service
ii. Look at successful businesses elsewhere and see if you can replicate in your area
3. Brainstorming- this is used when more than two people are involved in generating ideas by encouraging
formulation of alternatives while withholding criticism. Alternatives generated are recorded for future analysis
and further discussion
4. Nominal group technique- this is used during decision making process as a method to generate and
prioritize ideas. All group members must be present and operate independently.
Steps used are;

i. Each member is to write down ideas independently on the problem before discussion
ii. Each member presents each idea at a time to the group without any discussion until all members have
presented their ideas

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 iii. The group then discusses ideas for clarity and starts evaluating each idea by looking at desirability of
outcome, feasibility, costs and resources involved and reconcilability with aim or problem
iv. Each member then independently assigns a rank to ideas and the idea with the highest aggregate ranking
will determine the decision to be made
5.Delphi technique- here the physical presence of members is not required, thus making the technique complex
and time consuming. Steps used are similar to nominal group technique but questionnaires are used at each step.
Results are compiled at a central location, transcribed and reproduced at each step. Step 2 and 3 can be repeated
several times as new solutions are generated. This method is used in existing companies and not to develop
ideas to start new venture.

Benefits of a well structured Business Opportunity

- Less costly and Reduced Risk of failure

- Ready market

- High level of one‘s potential for competence

-Better financing options

-Professional and less wasteful advertising and promotion

- Improved bargaining and purchasing power.

Consequences of a poorly structured Business Opportunity

- Mismanagement

- Lack of will power (No confidence) and Lack of financial support

- Exclusivity clauses: The entrepreneur may be restricted to selling only the manufacturer‘s merchandise.

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- Parent-company bankruptcy

FEASIBILITY ANALYSIS

Feasibility analysis is the process of determining if a business idea is viable. As a preliminary evaluation of a
business idea, a feasibility analysis is completed to determine if an idea is worth pursuing and to screen ideas
before spending resources on them. It follows the opportunity recognition stage but comes before the
development of a business plan. When a business idea is deemed unworkable, it should be dropped or rethink;
if it is rethought and slightly a different version of the original idea emerges, the new idea should be subjected
to the same level of feasibility as the original idea.

See the figure below

Product
/Service
Feasibility PROCEED
Yes in all WITH
Industry four areas
BUSINESS
/Market PLAN
Feasibility
PROPOSED
BUSINESS
VENTURE Organization
al Feasibility
DROP OR
No in 1 or RETHINK
more areas
Financial BUSINESS
Feasibility IDEA

Product/Service Feasibility

This is an assessment of the overall appeal of the product or service being proposed. Before rushing a
prospective product or service into development, a firm should be confident it‘s what customers want and that
the product or service will have an adequate market. In entrepreneurship, all factors are important, but for most
firms, the number one success factor is delivering a superior product or service. New product success or failure
is largely decided in the first flays of the game.

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The following are some of the benefits of conducting a product/service feasibility analysis

BENEFITS APPLICATIONS

Getting the product right the first You know what consumers want because you asked them.
time You also tested a product‘s usability and the quality of the
user‘s experience

An ―early adopter‖ community The firms or individuals that participate in the feasibility
emerges analysis often become a co‘s first customers or adopters.
These customers provide additional feedback as the
product or service rolls out.

Avoiding any obvious faults in By asking prospective customers to test the usability of a
product or service design product or the ease of use of a service, obvious design
errors are usually uncovered.

Using capital and time more Because you have an idea of what customers want, you
efficiently won‘t spend as much time or money chasing ideas that
customers don‘t want.

Gaining insight into additional Often, conducting a feasibility analysis for one product or
product and service offerings service prompts the recognition of the need for additional
products or services.

A well designed concept test/statement should include the following

- A description of the product or service being offered.

- The intended target market.

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- The benefits of the product or service.

- A description of how the product will be positioned relative to similar ones in the market.

- A description of how that product will be sold and distributed.

The product/Service Usability Testing

This is a form of product/service feasibility analysis, which measures the product‘s ease of use and the user‘s
perception of the experience. Usability tests are sometimes called user tests or field trials depending on the
circumstances involved. Some entrepreneurs, working within limited budgets, develop a fairly basic prototype
and ask friends or colleagues to use the product, then complete an evaluation form or give verbal feedback.
Other companies invest on elaborated usability testing programs and facilities.

Industry/Market Feasibility

This is an assessment of the overall appeal of the market for the product/service being proposed. For feasibility
analysis, there are three issues that a proposed business should consider:

 Industry attractiveness

 Market timeliness

 Identification of a market niche.

Industry Attractiveness: Industries vary considerably in terms of their growth rate. An industry that is
growing is more attractive because it more receptive to new entrants and new products introduction. One of the
worst ways for entrepreneurs to explain potential market attractiveness is to describe some huge market, and
think that size guarantees success. This can only work if the start-up/ new venture has some real advantage over
its competitors and some way of preventing imitation, or if they are pioneers in that market.

Organizational Feasibility

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This is conducted to determine whether a proposal business has sufficient management expertise and other
resources to successfully launch its business. There are two issues that must be given special consideration
here:

Management competence :( conceptual , human and technical skills, experience, familiarity with the industry
etc.) and Resource Sufficiency

Financial Feasibility

The most important issues to consider here are total start up cash needed, financial performance of similar
businesses and the overall financial attractiveness of the proposed venture. There is need to clearly show where
the money to start up the business will come from and if it‘ll be a loan, elaborate a plan on how to pay it back.

ENTREPRENEURSHIP AND COMMUNICATION

Communication can be defined as a transfer of ideas, information and attitude.

All entrepreneurs must be able to communicate with many different people both verbal and written
communications are important. The best way to become skilled at communicating is by practicing. There a two
types of communications that will be important such as through rocket pitch and business plans. A rocket
pitch is a short speech that conveys one‘s vision, goals, and purpose; it identifies an opportunity and briefly
describes the approach to that opportunity – the solution – that the entrepreneur will take. A business plan is a
concise document that includes the same information as rocket pitch and includes the research and assumptions
on which your approach is based. Most importantly, a business plan will include more detail of how you will
run and organize your solution.

Rocket pick

Entrepreneurs must learn to clearly and effectively communicate in a way that generates interest for their ideas.
More often than not you may only have a very short amount of time to convey what is most important and/or
impressive about you or your ideas. One way to do this is through what is called rocket pitch – a succinct
37
delivery of an idea or opportunity. A rocket pitch usually consists of simple, three-minute or less presentation
that explains the market potential and how your solution will address it. Because the presentation is so brief,
you want to include only enough detail to interest possible supporters and highlight why your idea is special. A
rocket pitch is targeted to potential supporters and other interested parties. Be as concise and strength forward as
possible, but bring passion and energy to the idea so that others are inspired by you.

There are four areas that you should cover in your rocket pitch:

1. The need

2. Product or service solution

3. Goals

4. Audience call to action

Business plan

A business plan is typically made up of key information including a summary of the opportunity, market
research of the industry and environment of the opportunity, the description of the solution including an
operation and marketing plans, goals and projected measures of those goals – financial impact or otherwise and
identification of necessary resources to get started.

A business plan is like a roadmap – there are many ways to get information point A to point B, and in many
cases you will not follow the roadmap exactly. However, it provides a framework to get started and helps act as
a checklist in considering important factors along the way. Your business plan will change as you begin to
implement your ideas and learn from those actions that is why it is important to begin practicing or trying out
your ideas as soon as possible – there is no better way to learn. Where your rocket pitch will help spark interest
from supporters, your business plan should help to solidify the help of your supporters. Your business plan will
share the assumptions that your idea or solution is based on, and will show the underlying innovation and
creation behind your idea. Additionally, it will clarify the measurement and projection of those goals which will
help potential supporters decide if those goals are both reasonable and in line with their objectives.

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 Methods of communication

Face to Face communication: direct conversation or speech between groups of person.

Written Communication . It includes: Orders, Instructions, Reports and Letters.

Mechanical methods: are mechanical devices used to send messages . E.g. : call bells, lights, telephone lines .
Etc

Electronic communication: is a field that covers pretty much anything that has to do with electric currents and
electrical charges.. (e.g internet,…)

Causes Of Poor Communication (Noise)

i. Faults on the part of the sender

ii. Faults that come from poor message presentation

iii. Failure on the part of management

iv. Poor use of media

v. Faults on the part of the reciever

vi. Difficulties Caused by Circumstances

Rules of Effective Writing ( 7 C’s of Communication)

1. Completeness ( Should convey all facts to the receiver)

2. Conciseness(Brief )

3. Consideration( step into the choose of the receiver)

4. Clarity(be specific)

5. Concreteness (be particular and not general)

6. Correctness( grammatical errors)

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7. Courtesy ( respect of the receiver)

40
GENERAL RULES AND REGULATIONS OF BUSINESS PRACTICE IN RWANDA

INTRODUCTION

The production and distribution of goods and services are in the hands of a very large number of business
enterprises. Business organizations vary immensely in their scale and organization whether an entrepreneur
wants to start a small or large firm, they have to choose from a variety of business entities.

Forms of Business in the Private Sector

Sole Proprietorship

Partnership

Private Limited Company

Public Limited Company

Cooperatives

Business Combinations

1. Sole Proprietorship: ―Sole‖ means ―single‖ and ―proprietorship‖ means ―ownership‖

It means only one person or an individual becomes the owner of the business. It is a business organization in
which a single person owns, manages and controls all the activities of the business

Characteristics of a Sole Proprietorship

Single Ownership: A single individual always owns the business, owns all assets and properties of the
business. Business cannot exist independently of the owner

Undivided risk: Sole proprietor alone bears all the risk of the business thus, the business of the sole proprietor
comes to an end at the will of the owner or upon his death.

No sharing of Profit and Loss: The entire profit arising out of sole proprietorship business goes to the sole
proprietor. If there is any loss it is also to be borne by the sole proprietor alone.

41
One person control: The owner makes independent decisions

Unlimited liability: The owner is usually identified with the business. The person takes personal liability for
all debts of the business because in principle, he/she enjoys the profits of the business. In case of loss the
business assets along with the personal properties of the proprietor shall be used to pay the business liabilities.

Less Legal Formalities: It does not require to be registered. It is not required to submit an account, list of
directors and such other requirements it needs only a license from the local administration

No separation of business entity from the person: the unlimited liability really states that the person is the
firm however; from the accounting point of view the organization must be separate from the owner.

Advantages of Sole Proprietorship

It is easy to form and Dissolve/Wind up: Very easy to form with a small amount of capital, there is no need
to comply with legal formalities, it is an individual‗s sole discretion to form or wind up the business at any time.

Direct Motivation: There is a direct link between effort and reward which serves as a powerful incentive to the
proprietor to manage the business efficiently

Ease of coordination: The proprietor takes all decisions and the business activities are relatively few because
of its size, there is no problem of coordination. All decisions flow smoothly and there is no clash of interest with
anybody in the organization.

Quick Decision and Prompt Action: The sole proprietor alone is responsible for all decisions. Of course, he
can consult others but he/she is free to take any decision

Better Control: The proprietor has full control over each and every activity of the business; he/she has all
authority for planning, organizing and coordinating

Maintenance of Business Secrets: keeping the future plans, technical competencies, business strategies, etc,.
Secret from outsiders or competitors.

Flexibility in Operation: The proprietor is free to change the nature and scope of business operations as and
when required

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Close Personal Relation: Direct contact enables close personal relations with customers and employees

Encourages self-employment:The owner is self-employed and sometimes creates job opportunities for others.
This helps in reducing poverty and unemployment in the country

Disadvantages of sole proprietorships

Lack of Continuity:Illness, death or insolvency of the owner brings an end to the business.

Limited Size: There is a limit beyond which it becomes difficult to expand its activities.

Limited Managerial Expertise: A sole proprietor may not be an expert in every aspect of management.

Suitability of Sole Proprietorship form of business

Sole proprietorship form of business organization is suitable where; the market for the product is small and
local; where customers are given personal attention, according to their personal tastes and preferences; where
the nature of business is simple, and where capital requirement is small and risk involvement is not heavy.

2. PARTNERSHIPS

MEANING: Partnership grew essentially because of the limitations and failure of the sole proprietorship. It can
be described a contractual relationship between two or more persons (called partners) who operate legitimate
business to which each contributes something, with the purpose of making a profit that is distributed among
them, in an agreed ratio.

Features of Partnerships

(i)Two or more persons: There must be at least two persons to form a partnership. A person can be a natural
person or a legal entity such as a corporation. A country's Companies Act or Partnership Act will specify the
maximum limit of partners.

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(ii) Agreement/contractual relationship: There must be an agreement to form a partnership. This agreement
may be oral, written or implied.

iii) Profit motive: the purpose of partnership should be to earn profits and there must be an agreement to share
them. Law through the partnership act provides that where there is no specific agreement, profits and losses,
will be shared equally.

(iv) Mutual Agency: There must exist a mutual agency relationship among the partners. This means that each
partner is an agent in the sense that he/she has the capacity to bind the others. Each partner is therefore a
principal (a person who has given an agent authority to some act(s) for him or her) because he/she is bound
by the acts of other partners.

A limited partnership is a partnership in which one or more of the partners are general partners with unlimited
liability, whereas one or more of the other partners are limited partners. In this case, the limited partners'
liability for partnership debts are limited to the extent of their investment in the partnership.

(vi) Joint ownership and control: The firm is owned and controlled jointly by the partners, since every
partner has the right to take part in the management of the business.

(vii) Non transferability of shares: A partner cannot transfer his/her share in partnership to any other person,
without the consent of all other partners.

(Viii) Duration: A partnership may or may not have a particular duration depending upon the provision in the
partnership agreement, or mutual consent of all partners.

Formation of a partnership

A partnership stays a contract among persons; therefore its formation does not involve any special legal
problems. In addition to the basic contractual provisions, there will usually be certain provisions which relate to
the type of business and to special problems connected with the management of that particular business. For
instance provisions in the partnership agreement (articles of partnership) of a law firm would not be the same
as in the articles of partnership of a family manufacturing firm.

Advantages of a partnership

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Easy formation: Like the sole proprietorship the partnership is also relatively easy to form, as it has no
complex legal formalities. Formation is by filling up a form and getting a registration certificate from the
registrar of firms.

Flexibility: A partnership is not subject to regulations as in case of companies and is thus easily adapted to
changes. Decisions are taken relatively quickly after consulting other partners who are usually few.

Large pool of financial resources: unlike the sole proprietorship, the plurality of persons allows pooling of
resources and enables the business undertakes relatively large scale operations. It also increases the credit
worthiness of the business.

More managerial skills: A partnership facilitates pooling of managerial skills of all its partners. This increases
the scope for efficient management, expansion and growth of the business.

Enhanced decision making: Because partners can meet frequently to discuss, and solve business problems,
they are more prompt than joint stock companies which have to go through the process of calling board of
directors and shareholders meeting for certain.

Sharing of risks and combined abilities: In partnership the risk is spread over the several partners. Besides
this plurality results into combined abilities and skills resulting into better management. Benefits of specialized
knowledge of each partner and those of division of labor will also be reaped.

Limitations of partnerships

Risks of disharmony or conflicts: because of plurality of persons, there are usually, different views from the
different partners, immediately there is lack of mutual understanding and harmony.

Unlimited liability: The liability of partners in the event of winding up of business is unlimited. Partners will
be called up on to raise from their own sources to cover the debts in case the liabilities are greater than assets of
the business. Besides, every partner is liable for the actions of the other partners because of the agency
relationship existing among the partners.

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Limited resources: Some factors( limited number of partners) impose a limit on the amount of resources that
can be available to a partnership business. Consequently, a partnership cannot undertake large-scale business
say as compared to Joint Stock Company.

Non transferability of interest: In partnership no partner can transfer his shares without the consent of all
partners. This makes it particularly difficult for would be investors to take interest in partnership business.

Risks of implied authority: Since every partner is an agent of the firm for the business of the firm, he/she can
bind the firm and all other partners by his/ her acts.

Suitability: The partnership form of business organization is suitable when the size of business is medium and
when the partners can work in full cooperation.

Dissolution, Winding up and /or Termination of a partnership

(i) Dissolution by the agreement of the partners: The partners may decide and agree to dissolve their
partnership for various reasons. This decision must be unanimous unless the partnership agreement specifies
otherwise. For example, the agreement could specify that only majority vote of the partners is needed to
dissolve the partnership. Remember a partnership is voluntary association, so it can be dissolved by voluntary
agreement.

(ii) Dissolution by Acts of the partners: As a general rule of law,a partnership is dissolved whenever its
membership changes . When informed of this rule of law , the layperson asks ,‖ if this true , then how do large
law firm and accounting firm partnership handle the problem ,as they are constantly bringing in partners,
retiring partners ,and so forth ?

―The answer is that partnership agreement of such firms specifies the procedure to be followed in case of
expulsion , voluntary withdrawal ,the addition ,death, or retirement of a partner or any other change in
membership

In effect, the old partnership is technically dissolved and reorganized in accordance with the provisions of the
agreement each time such a situation occurs.

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(iii) Withdrawal by a partner: If a partner withdraws from business, that action causes dissolution of the
partnership .This does not necessarily mean that the business will have to be terminated. If the partnership
agreement has been drawn with this problem in mind, it will contain provisions that give the remaining partners
the right to buy the withdrawing partners‘ interest so that they can continue the business. Although a partner
has the power to withdraw from partnership for any reason that he or she may choose, the withdrawing partner
may still be liable to the remaining partners for breach of contract.

After all, the partnership agreement is a contract, and if its breach causes damage to the other contracting
parties, then the violating party should be liable for such damages. Here again a well –drawn partnership
agreement should anticipate and a solution for such problems.

(iv) Expulsion of a partner

If the agreement provides for the expulsion of a member under certain circumstances and the remaining partners
exercise that power for good and valid cause, then the partnership is dissolved.

Death of partner: Death of any partner will cause dissolution.

Bankruptcy of a partner

Addition of a partner

(v) Dissolution by operation of law: If by legislative enactment or court decision the business that the
partnership was carrying on is no longer legal, then the partnership is dissolved by operation of the law. The
partnership agreement has become an illegal bargain, and is therefore void.

Illustration ,let‘s say that a partnership is operating a casino in Kigali City and the gaming commission takes
away its license, or the gambling law is repealed, making gambling illegal. The partnership will then be
dissolved by operation of law.

(vi) Dissolution by Court Decree: Often circumstances arise that require a court to determine whether or not a
partnership should be dissolved. For example, if an affliction has caused a partner to be of unsound mind and
incapable of handling the partnership‘s affairs then a remaining partner may petition the court to order the
dissolution of the partnership.

47
A court determination might also be desirable if one of the partners has become a drunkard or a drug addict and
no longer assumes his or her share of the work and responsibility but refuses to dissolve the partnership
voluntarily. Or, if fewer than the number of partners required for voluntary dissolution under the agreement will
agree to dissolution, then the partners requesting dissolution may request that the court review the situation.

(vii) Dissolution by Expiration: A partnership may be created for a specified period of time, such as five years
. When that period expires, the partnership is dissolved.

3. Joint Stock Companies

Introduction: A company form of business organization came into existence to mitigate at least two problems
in sole proprietorships and partnerships: Limited capital and the risk involved in business and their unlimited
liability. A company form of business organization is known as a Joint Stock Company. It is a voluntary
association of persons who generally contribute capital to carry on a particular type of business; it is established
by law and can be dissolved only by law. Persons who contribute capital become members of the company.

Company Incorporation in Rwanda: A company is a legal entity which is made up with one physical person
or corporate person for commercial purposes. It is compulsory to register a company in the Registrar‘s office

This form of business has a legal existence separate from its members. This form of business organization
generally requires huge capital investment which is contributed by its members. The total capital of a joint stock
company is called share capital. It is divided into a number of units called shares. Thus, every member has some
shares in the business depending upon the amount of capital contributed. Members are also called shareholders.

Characteristics of Joint Stock Company

Legal formation: A joint stock company comes into existence only when it has been registered after
completion of all formalities required by the country‗s law

Artificial person: Its birth, existence and death are regulated by law

Separate legal entity: it has its own separate existence independent of its members; it can own property, enter
into contracts and conduct any lawful business in its own name. It can sue and can be sued by others in the court
of law. The shareholders cannot be held responsible for the acts of the company

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Common seal: Joint stock company has a seal; this seal is used while dealing with others or entering into
contracts with outsiders. It is called a common seal and it can be used by any officer at any level of the
organization working on behalf of the company. Any document, on which the company's seal is put and is duly
signed by any official of the company, becomes binding on the company

Perpetual Succession: A joint stock company continues to exist as long as it fulfils the requirements of law. It
is not affected by the death, insolvency or retirement of any of its members.

Limited liability: The liability of a member is limited to the extent of the value of shares held by him. Even if
there is liquidation of the company, the personal property of the shareholder cannot be attached

Democratic management

Joint stock companies have democratic management and control. Normally, the shareholders elect
representatives from among themselves known as ‗Directors‘ to manage the affairs of the company.

Categories of Joint Stock Companies

 Private Company

 Public Company

For features of each of the above please refer to:Law No 07/2009 of 27/04/2009
Ministerial Order No 02/09/MINICOM OF 08/05/2009

Advantages of a joint stock Company

Large financial resources: A joint stock company is able to collect a large amount of capital through
contributions from a large number of people. In a public limited company shares can be offered to the general
public to raise capital.

Limited Liability:

- Liability of its members is limited to the extent of the value of shares held by them.

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- Private property of members cannot be attached for debts of the company. This advantage attracts many
people to invest their savings in the company and it encourages the owners to take more risk.

Professional management:

- Management of a company is in the hands of directors, who are elected democratically by the members or
shareholders.

-These directors as a group (Board of Directors or simply Board) manage the affairs of the company and are
accountable to all the members.

- Members elect capable persons having sound financial, legal and business knowledge

- They can manage the company efficiently.

Large-scale production: Availability of large financial resources and technical expertise. It is possible for the
companies to have large-scale production. It enables the company to produce more efficiently and at lower cost.

Contribution to society: A joint stock company offers employment to a large number of people. It facilitates
promotion of various businesses. Sometimes it also donates money towards education, health and community
services.

Research and Development: It is possible to invest a lot of money on research and development for improved
processes of production, new design, better quality products, etc. It also takes care of training and development
of its employees.

Disadvantages of a Joint Stock Company

Delay in policy decisions: Generally policy decisions are taken at the Board meetings of the company.

Lack of secrecy: management is usually different from ownership, the imposition of the company‘s act on
disclosure of certain information.

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BUSINESS UNITS IN THE PUBLIC SECTOR

Government Trading: Sometimes government carries out trading activities under the direct control of a
government department.

The government as a shareholder: the government holds shares in some public limited companies. These
may have been acquired for a number of reasons for example, Government interest in developing a particular
industry. Occasionally government sets up a limited company under its sole ownership where there is an
important service to be performed but not much profit to be made.

The Public Corporations

Public corporations may be divided into two groups:

Those which sell a product or service directly to the public, charging each customer for what is used, e.g. the
Post Office, ONATRACOM, and Those which provide a service and do not charge it directly e.g. Radio and
television

A Public Corporation is a separate legal form found only in the public sector. Each one is set up by an act of
parliament. Each corporation has a legal identity separate from that of the government and has its own
management board selected by the government. It may sue and be sued in its own name.

4. Business Combinations

Introduction: Businesses have been characterized by stiff competition among one another. Competition has
turned out to be increasingly harmful as it draws away most of the profits companies earned. Some companies
run out of business all together due to being out competed by big ones. This has pushed entrepreneurs to
working through co-operations, hence forcing them to engage in joint ventures.

Even though this competition is praised by many, it has turned out to be increasingly harmful as it draws away
most of the profits companies earned. It is this growing business based on competition and uncertainty that
forms the basis for the formation of business combinations.

The tendency in the present business era: Large scale operation and gradual expansion

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Internal Expansion: Extension of the scale of expansion of an individual unit

External Expansion: Expansion as a result of drawing together several units under single control

Towards definition: A business combination occurs when two or more separate businesses join into a single entity. It
is a unification or association of several business units, similar or dissimilar, into one organization to serve a
common purpose.

Major causes of business combinations

To avoid wasteful competition: With the severity of competition worldwide, small enterprises are driven out of
business. Even large ones struggle to succeed. Combining some of their units reduces wasteful competition.

Large scale operations: Business entities enjoy discounts from bulk purchases, bigger market shares, easy
access to finances. This is not the case for small and medium enterprises.

Desire for monopoly power: Monopoly leads to control of the market and generally means large profits for the
organization.

Business cycle: Business or trade cycles are the ups and downs occurring capitalist economies. They consist of
booms (peak prosperity) and depressions (low economic activity). During peaks, existing units expand and
create unhealthy competition. During depression business units combine to reduce competition

Respect for Size and Desire for power: There is a worldwide respect for big business. Many dynamic business
people desire to build industrial empires. The aspiration for power leads them to establish bigger units

Withstanding domestic and foreign competition

Organizations’ ability and ambitions: Scarcity of managerial talent in some organizations has led to many
combinations. Businesses combine to take advantage of talents of particular skilled business managers.

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 Types of Business Combinations

1. Vertical combination: Operations in different, but successive stages of production or distribution, or both

eg. Sugar cane cultivation crushing plant Sugar processing plant manufacturing sweets

Lateral or Allied Integration

When the units which are engaged in the manufacture of related products have formed a combination, this type
of integration can be of two forms:

A. Convergent Lateral Integration

A combination of different units which supply goods and services to help in the functioning of one major
common business. The finished products of many units constitute the raw materials of one

Example:

Paper

Printing
press

Ink Card
Boards

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B. Divergent Lateral Integration

Different combining units get their raw materials from a major firm. The product of one firm becomes the raw
material of the other firms that have combined with it.

Shoes

Leather Factory
Suitcases

Belts

2. Horizontal Combination A number of similar organizations, which are competing on the same stage or
process or production unit

Example

54
3. Conglomeration: Unrelated and diverse products or services combine

Plant 1 Plant 2 Plant 3

Petro Restaurant Radio

station station

Forms of Business Combination

Merger and Acquisition: This occurs when one corporation takes over all the operations of another business
entity and that other entity is dissolved.

- Existing company acquires another company

- Acquired company‘s operations are merged with its own.

For Mergers: A+B = AB

For Acquisition: A+B= A or B

Consolidation: It occurs when a new corporation is formed to take over the assets and operations of two or
more separate business entities and dissolves the previously separate entities. In this case, two or more
previously separate firms are combined into one new company.

Consolidations: E+F =G

Advantages and disadvantages of Business Combination

ADVANTAGES DISADVANTAGES

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- Pooling of knowledge and experience - High prices

- Availability of goods at cheaper prices - Unfair practices

- Greater financial strength and stability - Political Corruption

- Promotion of export by supplying goods of standard - Exploitative motive

specifications
- Possible inefficiencies
- Tackling common problems
- Managerial Difficulties

- Stifling small enterprises

- Raising Income Inequality

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CHAPTER FOUR: BUSINESS PLAN DEVELOPMENT

The real value of creating a business plan is not in having the finished product in hand; rather,
the value lies in the process of researching and thinking about your business in a systematic
way. The act of planning helps you to think things through thoroughly, study and research if
you are not sure of the facts, and look at your ideas critically. It takes time now, but avoids
costly, perhaps disastrous, mistakes later.

Although some new ventures simply ―wing it‖ and start doing business without the benefit of
formal planning, it is hard to find an expert who doesn‘t recommend preparing a Business Plan.

A business plan is a written narrative, typically 25 to 35 pages long, that describes what a new
business intends to accomplish and how it intends to accomplish it. It is a detailed account of
how the entrepreneur plans to convert his ideas and vision into real, functioning business. It is a
document that outlines all the steps that the entrepreneur intendeds to follow to achieve the
objectives or goals he has already envisioned for his business.

For most new ventures, the business plan is a dual-purpose document:

- Inside the firm, it helps the company develop a ―road map‖ to follow in executing its strategies
and plans.

- Outside the firm, it introduces potential investors and other stakeholders to the business
opportunity the firm is pursuing and how it intends to pursue it.

The purpose /Importance of a Business Plan

- To determine the road map of a business

- Better understanding for the business

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- It is a Work plan for the operations of the business.

- It is a selling document for the new venture (marketing)

- It is a tool for Management

- It Provides room to understand risks involved

- It is a way to convince private investors to invest their money in new ventures, obtain capital...

- It sets you apart from the crowd:(Even if some banks do not request for business plans,
companies that present business plans stand higher chances of getting the funds they seek)

- It sets a basis for trust and it is a communication tool

- It is a reference tool

Guidelines for witting a Business Plan

-It is important to remember that a firm‘s business plan is typically the first aspect of a proposed
venture that will be seen by various stakeholders.

-It is important to be sensitive to the structure, content and style of your business plan before
sending it to an investor or anyone else who may be involved with your firm.

Structure of a Business Plan:

- To make the best impression, a business plan should follow a conventional structure.

- Although some entrepreneurs want to demonstrate creativity in everything they do, departing
from the basic structure of the conventional business plan format is usually a mistake.

58
- Investors are very busy people and want a plan where they can easily find critical information.
If any investor has to hunt for something because it is in an unusual place or just isn‘t there, he
/she might simply give up and move on to the next plan.

Content:

- The business plan should give clear and concise information on all the important aspects of the
proposed venture.

- It must be long enough to provide sufficient information yet short enough to maintain the
reader‘s interest.

- Normally 25-35 pages are sufficient, supporting documents such as resumes(CVs) can appear
in an appendix.

- Content may be less or more depending on the intent of the planner.

- Whether brief or detailed, make sure that the major parts are taken into consideration and the
target audience will easily understand it.

- After a business plan is completed, it should be reviewed for spelling and grammar and to
check whether no critical information has been omitted.

- Imagine if you focus on the content of the plan and forget to indicate the contact information,
the amount of funds needed,

59
Style of the business plan:

- The appearance of the business plan must be carefully thought of.

- It should look sharp but not give an impression that a lot of money was spent on it.

- When writing the plan, avoid getting carried away with the design elements included in word
processing programs such as word art, different font sizes and colors…

- Overuse of these tools makes a business plan look amateurish rather than professional.

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The Business Plan Outline

V. INDUSTRY ANALYSIS

COVER PAGE -Trends, attractiveness-(growing, mature or in

decline?)
TABLE OF CONTENTS
- Profit potential
I. EXECUTIVE SUMMARY
- Target Market
A. The Opportunity (Problem to be solved or
need to be filled) - Competitive Position within the target
market.
B. The Description of the Business(How the
proposed business solves the problem or fills - Key success factors(
the need)
VI. MARKETING PLAN
C. Competitive Advantage
- Product (concept testing, usability…).
D. The Target Market
- Pricing strategy
E. The Management Team
- Channels of distribution
F. Brief Summary of Financial projections (
- Promotions &Advertisement
The amount of capital needed and what the
capital will be used for) - Projected cash flow statements

II. THE BUSINESS DESCRIPTION - Payback strategy

A. The Opportunity (problem to solve or need - Exist strategy

to be filled) VII. FINANCIAL PLAN

B. The Description of the Business(How the

61
proposed business solves the problem or fills -Statement of comprehensive income
the need, brief company history or
-Statement of financial position
background,
VIII. CRITICAL RISK FACTORS

- Management risks
C. Company, vision, mission goals
objectives, ….) • Marketing risks

D. Competitive advantage/core strategy (e.g. • Operating risks

cost leadership, uniqueness,….) • Financial risks

III. MANAGEMENT TEAM • etc
- Management IX. APPENDICES
- Experience, ability, technical expertise. - Any materials that do not easily fit into the

- Board of Directors, if any (Composition of body of a business plan should appear in an

the Board, Number of directors…)
- Board of advisers (composition of the
advisory board…)
IV. COMPANY OWNERSHIP
appendix. These may include resumes, photos,
product prototypes, certain financial data, ….
- The appendix should not be bulky and add
unnecessary length to the business plan.

- Organizational structure

- Legal form of ownership (Sole

proprietorship, company, partnerships…)

62
Presenting the business plan to investors

- If the business plan successfully elicits the interest of a potential investor, the next step is to
meet with them and present the plan in person.

- When given an opportunity to present your business plan to an investor, you should prepare a
set of PowerPoint slides that will fill the time slot allowed for the presentation portion of the
meeting.

- The key topics to cover include the Company, the Opportunity, the Strength of the
management team, industry analysis, financials, payback, exit strategy….

Key/Power points to include in an investor presentation:

Topic Explanation

-Title: -Introduce the presentation with the company name, the

names

Of the founder and the company logo if available

-Problem: - Briefly state the problem, opportunity or gap to be

filled

-Solution: - Explain how the firm will solve the problem and how
it will

satisfy the need or fill the gap.

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-Business Model: - How will the company make money and the essence of
its

Business model

-Management Team: - Each manager‘s competencies, qualifications, skills

and how they

Strengthen the firm

-Industry and target market: The industry the firm will be competing in, the
segment of the

the industry the firm will target, and how it will be

positioned

within its target market.

-Competition The firm‘s competitive advantage and how it will

compete

against more established competitors.

-Intellectual Property Explain the intellectual property the firm owns or will
own

pending approval.

-Current status, amount of money

requested and the projected use of funds Discuss the current status of the firm, its
accomplishments to

64
 to date, the amount of money required , amount of
money

acquired, projected use of funds etc.

- Presentation of projected financial statements ( income statement, Balance sheet, Cash flew) ,
risk analysis

- Exit strategy

65
PART II: PROJECT MANAGEMENT

CHAP 1. OVERVIEW OF PROJECT MANAGEMENT

“A project is any sort of planned undertaking”.

According to Dr. J. M. Juran “A project is a problem scheduled for solution”. PMI defines a project as ―. . . a
temporary endeavor undertaken to produce a unique product, service, or result (PMBOK® Guide 2004, p. 5). This
means that a project is done only one time. If it is repetitive, it‗s not a project. A project should have definite starting
and ending points (time), a budget (cost), a clearly defined scope—or magnitude—of work to be done, and specific
performance requirements that must be met. All of us have been involved in projects, whether they be our personal
projects or in business and industry. Examples of typical projects are for example:
Personal projects:
plan a wedding
plant a garden
Industrial projects:
construct a house
provide a gas supply to an industrial estate
Business projects:
develop a new course
develop a computer system

Projects can be of any size and duration. They can be simple, like planning a party, or complex like launching a
space shuttle. Generally projects are made up of:
- a defined beginning,

- multiple activities which are performed to a plan,

- a defined end.

66
Therefore a project may be defined as a means of moving from a problem to a solution via a series of planned
activities.
 A project is a means of moving from a problem to a solution via a series of planned activities.

 A project has a definite beginning and end.

 Projects consist of several activities.

Two essential features are present in every project no matter how simple or complicated they are.
In the first place, all projects must be planned out in advance if they are to be successfully executed.
Secondly, the execution of the project must be controlled to ensure that the desired results are achieved. On most
projects it is possible to carry out multiple activities simultaneously.
Usually it is possible to perform several activities at the same time; however there will be activities which cannot
begin until a preceding activity has been completed. Regardless of the nature or size of your project a successful
outcome can only be achieved by using sound project management techniques. The most widely used and popular
methods of project management are Gantt Charts, Critical Path Method (CPM) and Programme Evaluation and
Review Technique (PERT). However, it is important to remember that projects are carried out by people, and the
human aspects of project manage are critical for the project success.

Project planning is a discipline for stating how to complete a project within a certain timeframe, usually with
defined stages, and with designated resources. One view of project planning divides the activity into:

- Setting objectives (these should be measurable)

- Identifying deliverables

- Planning the schedule

- Making supporting plans

Project management: The adept use of techniques and skills (hard and soft) in planning and controlling tasks
and resources needed for the project, from both inside and outside of organization, to achieve results. The
purpose of project management is to achieve successful project completion with the resources available. A
successful project is one which:
 has been finished on time

 is within its cost budget

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 performs to a technical/performance standard which satisfies the end user.

Project Management is defined as ―application of knowledge, skills, tools and techniques to project activities to
achieve project requirements. Project management is accomplished through the application and integration of the
project management processes of initiating, planning, executing, monitoring/ controlling, and closing‖
(PMBOK® Guide 2004, p. 8).

1.1. Concepts definition

Project: an interrelated set of activities that has a definite starting and ending point and results in the
accomplishment of a unique, often major outcome.

"Project management" is, therefore, the planning and control of events that, together, comprise the project. Project
management aims to ensure the effective use of resources and delivery of the project objectives on time and within
cost constraints.

Activity or task is the smallest unit of work effort within the project and consumes both time and resources which
are under the control of the project manager. A project is a sequence of activities that has a definite start and finish,
an identifiable goal and an integrated system of complex but interdependent relationships.

SWOT Analysis: Analysis of Strengths, Weaknesses, Opportunities and Threats.

Indicators: indicators are a measurable or tangible sign that something has been done. So, for example, an increase
in the number of students passing is an indicator of an improved culture of learning and teaching. The means of
verification (proof) is the officially published list of passes.

Work Breakdown Structure (WBS): a WBS is the functional decomposition of a system. It breaks the project into
chunks of work at a level of detail that meets planning and scheduling needs. A complex project is made manageable
by first breaking it down into individual components in a hierarchical structure, known as the work Breakdown
Structure, or the WBS. Such a structure defines tasks that can be completed independently of other tasks,
facilitating resource allocation, assignment of responsibilities, and measurement and control of the project.

Gantt Chart: a Gantt chart is a visual representation of a project schedule. A type of bar chart, a Gantt charts show
the start and finish dates of the different required elements of a project. Henry Laurence Gantt, an American
mechanical engineer, is recognized for developing the Gantt chart. Gantt charts are useful in planning how long a

68
project should take and helping to sequence the events by laying them out in the order in which the tasks need to be
completed.

Logical Framework: the logical framework is a highly effective planning tool for defining inputs, outputs,
timetables, success assumptions and performance indicators. It provides a structure for specifying the components of
an activity and for relating them to one another. It also helps to identify the place of a project within an overall
program or a national system.

Inputs: these are activities undertaken under the program or project, and the means (resources, staff) used to
undertake them, with the expectation that implementing theses inputs will lead to the production of the designated
outputs.
Outputs: represent those achievements (technology, knowledge) which derive from the inputs and are not dependent
on other activities.

Project deliverable: after you establish the objectives of your project, you define the actual products or services
that meet those objectives. These products or services are called deliverables. For example, quantifiable goods or
services that will be provided upon the completion of a project. Deliverables can be tangible or intangible parts of
the development process, and are often specified functions or characteristics of the project.

Project milestone: a milestone is a task of zero duration that shows an important achievement in a project.
Milestones are a way of knowing how the project is advancing if you are not familiar with the tasks being executed.
They have zero duration because they symbolize an achievement, a point of time in a project.
PMBOK® Guide: Project Management Body of Knowledge Guide.

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1.2. Knowledge Areas that project managers should be familiar with
There are nine knowledge areas that project managers should be familiar with in order to be considered
professionals. These are as follows.

1) Project Integration Management

Project integration management ensures that the project is properly planned, executed, and controlled, including the
exercise of formal project change control. As the term implies, every activity must be coordinated or integrated with
every other one in order to achieve the desired project outcomes.

2) Project Scope Management

Changes to project scope are often the factors that ―kill‖ a project. Scope management includes authorizing the job,
developing a scope statement that will define the boundaries of the project, subdividing the work into manageable
components with deliverables, verifying that the amount of work planned has been achieved, and specifying scope
change control procedures.
3) Project Time Management
It refers to developing a schedule that can be met, then controlling work to ensure that this happens! It‗s that simple.
Because everyone refers to this as scheduling, it should really be called schedule management.

4) Project Cost Management

This involves estimating the cost of resources, including people, equipment, materials, and such things as travel and
other support details. After this is done, costs are budgeted and tracked to keep the project within that budget.
5) Project Quality Management
One cause of project failure is that quality is overlooked or sacrificed so that a tight deadline can be met. It is not
very helpful to complete a project on time, only to discover that the thing delivered won‗t work properly! Quality
management includes both quality assurance (planning to meet quality requirements) and quality control (steps
taken to monitor results to see if they conform to requirements).
6) Project Human Resource Management
Managing human resources is often overlooked in projects. It involves identifying the people needed to do the job,
defining their roles, responsibilities, and reporting relationships, acquiring those people, and then managing them as
the project is executed. Note that this topic does not refer to the actual day-to-day managing of people.

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7) Project Communications Management
As the title implies, communication management involves planning, executing, and controlling the acquisition and
dissemination of all information relevant to the needs of all project stakeholders. This information would include
project status, accomplishments, events that may affect other stakeholders or projects, and so on.
8) Project Risk Management
Risk management is the systematic process of identifying, quantifying, analyzing, and responding to project risk. It
includes maximizing the probability and consequences of positive events and minimizing the probability and
consequences of adverse events to project objectives. This is an extremely important aspect of project management
that sometimes is overlooked by novice project managers.

9) Project Procurement Management

Procurement of necessary goods and services for the project is the logistics aspect of managing a job. It involves
deciding what must be procured, issuing requests for bids or quotations, selecting vendors, administering contracts,
and closing them when the job is finished.

1.4. Project results

All project proposals should explain all the expected results that will be achieved by the project. Many proposal
formats seek extensive information on results just to ensure that the set objectives are successfully achieved.
However, some proposal formats request both outputs and outcomes separately. Project results can be divided into
three types: Outputs, Outcomes, Impact.

Outputs are those results which are achieved immediately after implementing an activity. For example, if we are
organizing a workshop on human rights, participants who attended it have now got a clear understanding on human
rights issues. So, this is an output the project has achieved and it is achieved right after the conclusion of the
workshop.
Outcomes can be considered as mid-term results. They are not seen immediately after the end of the project activity.
But after some time, when we see some change at the ground level because of the project activity, then it can be
termed as an outcome. Taking the above example of a human rights workshop, if the participants have started to
mobilize their community members to seek their human rights, then it is an outcome of the project.

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Impact is usually a long-term result and it may not be achievable even during the life cycle of the project. For
example, if the community has achieved its goal of getting their human rights recognized by the government, then it
is an impact created by the project though it is usually seen after several years

CHAP 2. PROJECT PROCESS

A process is a way of doing something. There are five processes that are used to manage projects. Although
some of them will be predominant at certain phases of a project, they may come into play at any time. Broadly
speaking, however, they tend to be employed in the sequence listed as the project progresses. That is, initiating
is done first, then planning, then executing, and so on. In the event that a project goes off course, re-planning
comes into play, and if a project is found to be in serious trouble, it may have to go all the way back to the
initiating process to be re-started. Other phases are monitoring/ controlling and Closing.

2.1. Initiation
Once a decision has been made to do a project, it must be initiated or launched. There are a number of activities
associated with this. One is for the project sponsor to create a project charter, which would define what is to be
done to meet the requirements of project customers. This is a formal process that is often omitted in
organizations. The charter should be used to authorize work on the project, define the authority, responsibility,
and accountability of the project team, and establish scope boundaries for the job. When such a document is not
produced, the team may misinterpret what is required of them, and this can be very costly. In this first stage, the

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scope of the project is defined along with the approach to be taken to deliver the desired outputs. The project
manager is appointed and in turn, he/she selects the team members based on their skills and experience. The
most common tools or methodologies used in the initiation stage are Project Charter, Business Plan, Project
Framework (or overview), Business Case Justification, and Milestones Reviews.

2.2. Planning
One of the major causes of project failures is poor planning. Most of the time the problem is due to no planning!
The team simply tries to ―wing it, to do the work without doing any planning at all. As I have explained earlier
in this chapter, many of us are task-oriented, and we see planning as a waste of time, so we would rather just get
on with the work. As we will see when we turn to controlling the project, failing to develop a plan means that
there can be no actual control of the project.
The second phase should include a detailed identification and assignment of each task until the end of the
project. It should also include a Risk Analysis and a definition of criteria for the successful completion of each
deliverable. The governance process is defined, stake holders identified and reporting frequency and channels
agreed. The most common tools or methodologies used in the planning stage are Business Plan and Milestones
Reviews.

2.3. Execution

There are two aspects to this process. One is to execute the work that must be done to create the product of the
project. This is properly called technical work, and a project is conducted to produce a product. Note that we
are using the word product in a very broad sense. A product can be an actual tangible piece of hardware or a
building. It can also be software or a service of some kind. It can also be a result—consider, for example a
project to service an automobile, which consists of changing the oil and rotating the tires. There is no tangible
deliverable for such a project, but there is clearly a result that must be achieved, and if it is not done correctly
the car may be damaged as a result. Executing also refers to implementing the project plan. It is amazing to find
that teams often spend time planning a project, then abandon the plan as soon as they encounter some difficulty.
Once they do this, they cannot have control of the work, since without a plan there is no control. The key is to
either take corrective action to get back on track with the original plan or to revise the plan to show where the
project is at present and continue forward from that point. The most important issue in this phase is to ensure
project activities are properly executed and controlled. During the execution phase, the planned solution is
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implemented to solve the problem specified in the project's requirements. In product and system development, a
design resulting in a specific set of product requirements is created. This convergence is measured by
prototypes, testing, and reviews. As the execution phase progresses, groups across the organization become
more deeply involved in planning for the final testing, production, and support. The most common tools or
methodologies used in the execution phase are an update of Risk Analysis and Score Cards, in addition to
Business Plan and Milestones Reviews.

2.4. Monitoring and Controlling

These could actually be thought of as two separate processes, but because they go hand-in-hand, they are
considered one activity. Control is exercised by comparing where project work is to where it is supposed to be,
then taking action to correct for any deviations from target. Now the plan tells where the work should be.
Without a plan, you don‗t know where you should be, so control is impossible, by definition.

Furthermore, knowing where you are is done by monitoring progress. An assessment of quantity and quality of
work is made using whatever tools are available for the kind of work being done. The result of this assessment
is compared to the planned level of work and if the actual level is ahead or behind of the plan, something will be
done to bring progress back in line with the plan. Naturally small deviations are always present and are ignored
unless they exceed some pre-established threshold or they show a trend to drift further off course.

2.5. Closing

In too many cases, once the product is produced to the customer‗s satisfaction, the project is considered
finished. This should not be the case. A final lessons-learned review should be done before the project is
considered complete. Failing to do a lessons-learned review means that future projects will likely suffer the
same headaches encountered on the one just done. In this last stage, the project manager must ensure that the
project is brought to its proper completion. The closure phase is characterized by a written formal project
review report containing the following components: a formal acceptance of the final product by the client,
Weighted Critical Measurements (matching the initial requirements specified by the client with the final
delivered product), rewarding the team, a list of lessons learned, releasing project resources, and a formal

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project closure notification to higher management. No special tool or methodology is needed during the
closure phase.

Project Life Cycle

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CHAP 3: FUNDAMENTAL OF PLANNING

3.1. Definition of planning Planning is the systematic process of establishing a need and then working out the best
way to meet the need, within a strategic framework that enables you to identify priorities and determines your
operational principles. Planning means thinking about the future so that you can do something about it now. This
doesn‗t necessarily mean that everything will go according to plan. It probably won‗t. But if you have planned
properly, your ability to adjust, without compromising your overall purpose, will be that much greater.

Why do you plan?

The combination of a good strategic framework (arrived at through strategic planning) and a good operational plan
or action plan:
Provides a clear understanding of what you need to do in order to achieve your development goals;
Guides you in prioritizing and making decisions;
Allows you to focus possibly limited resources on the actions that will benefit your work the most;
Keeps you in touch with your context – global, national and local; Provides a tool to help you communicate
your intentions to others;
Provides a coherent guide for day-to-day implementation.

It is important to think about the benefits of planning because there will be many excuses for not doing it and for just
―getting on with the work‖. Sometimes it seems easier not to plan, because:
Good planning takes time and money. But if you do it well, it is worth the investment.
Sometimes ―effective muddling‖ can see you through. That is true – if you are lucky. But muddling can be
costly and confusing, as well as inefficient (poor use of resources) and ineffectual (not achieving desired results).
You can‗t plan in the middle of a crisis. But if you plan well, you will avoid some crises, and while you may
have to deal with your crises immediately, irrespective of your plans, once the crisis is over the plan will give you a
way to engage with the work again.

When do you plan?

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There are no hard and fast rules about when planning takes place in an organization or a project. Here are some
guidelines:
Before you begin something new, you need to do a full-scale planning process – this applies to a new
organization and to a new project.
Implementation needs to be monitored constantly so that action planning can be reviewed and altered if
necessary.
Annual planning (review of strategy - every second year - and evaluation of activities as a basis for detailed
planning of activities for the year) should usually take place towards the end of the previous year, with enough time
to allow for plans to be implemented in the New Year. A ―year is not necessarily a calendar year. Your year may be
determined by your financial year or by a project cycle period.
Full-scale strategic planning should probably take place every three to five years, unless the environment is
changing rapidly and dramatically.

3.2. Different kinds of planning

―Planning is a big term that includes a number of different kinds of activities. It is possible to plan at the strategic
level, at the activity or operation level, to plan for an organization, or for a program or for a project. The two main
kinds of planning are:
strategic planning
business/action/operational planning

a) Strategic planning
Strategic planning, or developing a strategic framework, is about the bigger picture. Organizations often get so
caught up in everyday problems that they do not think about the big picture. They are too busy planning ―to do
things, something that falls under business/action/operational planning. It is through strategic planning that an
organization develops a strategic framework. This framework helps the organisation determine its priorities and the
strategies that are likely to help it achieve its vision of the future.

A strategy is an overall approach, based on an understanding of the broader context in which you function, your
own strengths and weaknesses, and the problem you are attempting to address. A strategy gives you a framework

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within which to work, it clarifies what you are trying to achieve and the approach you intend to use. It does not
spell out specific activities.

Where do you go with strategic planning?

Strategic planning enables a development organization to:

analyze the situation or context in which it is operating (social, political and economic) so that it understands the
context and is able to formulate a vision;
identify the problem or problems within the situation that the organization believes it is well-placed to address;
formulate a vision and mission statement based on its problem analysis and identification ;
analyze its strengths and weaknesses in addressing the identified problems;
identify opportunities and threats in the environment that may affect its work (both a SWOT Analysis and a
PEST Analysis will help you do this;
prioritize what it needs to do;
review strategic options for achieving its goals and select the most appropriate.

Once this is done, the organization is ready to move into the next phase of planning which is doing the
business/action/operational planning. This turns a strategy into implementation. Without the strategic planning
phase, it is very likely that you will end up doing a range of activities that may not always add up to a coordinated
effort. The strategic plan keeps you on track. It provides a touchstone against which to answer questions such as:
Is this the sort of work we ought to be doing?
Will this activity contribute to the achievement of our vision and goals?
Given that we have scarce resources, is this the most strategic action for us to take? Will it have the maximum
impact for the investment of resources made?
Is this the most appropriate way for us to go about achieving our goals?

Any new organization, project or programme needs to do strategic planning in order to develop a strategic
framework in which to work. However, established or existing organizations, projects or programmes also need to
revisit the strategic planning process from time-to-time. Situations change, strategies don‗t work, different
opportunities become available. It is not recommended that you do strategic planning every year. This could well
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lead to you chopping and changing your strategic choices without giving them a real chance to work. However, a
strategic review every two years, and a full-scale strategic planning process every three to five years, can work well.

b) Business/action/operational planning

What happens if you move directly into doing, without strategizing first?
It is now that we get to the ―doing. Most organisations find this much easier than ―being strategica‖.
A workshop to plan? A campaign to launch?
Let‗s get on with it! But without the preliminary strategic work, you have no way of assessing whether the workshop
or the campaign or the approach is what you really should be doing!
Take, for example, the organisation from the USA that had great success in its HIV/AIDS prevention work at home.
It was funded to do the same work in a developing African country and sent out a very experienced programme
director who had great success in his work in the USA. The organisation focused on homosexual sex and used a kind
of ―shock strategy to get people in the developing African country to understand how to prevent the spread of the
disease. But, in fact, in African countries the disease is mostly spread through heterosexual sex and people are much
less open about homosexuality than they would be in San Francisco or New York. A different strategy was needed
but, because the organization went directly into action, without going through a strategic planning process first, it
failed to impact on the HIV/AIDS epidemic in the developing country.

What is business/action/operational planning?

These are different words for a very similar process. Each of them refers to a plan for implementation in order to
achieve your broader goals and your objectives. For the sake of simplicity, we generally refer to the process as action
planning and the plan as an action plan. Once you have a strategic plan, the action plan answers the following
questions:
What needs to be done?
How will it be done?
Who will do it?
By when must it be done?
What resources are needed to do it?

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Answering these questions will give you the basis on which to plan a budget and raise money or generate income.
So, for example, your vision may be that every child in the country has access to affordable early childhood
education. Your goal becomes ensuring that there are enough trained teachers to make this possible. Your objective
is to train a certain number of home-based teachers in every region of the country, through running a certain number
of workshops in each region. Your action plan will answer the key questions by detailing the ―what‖ as follows:


The exact number of workshops and the targets for attendance at each (including a profile of the kind of
participants you want).
How participants will be recruited, who will be involved and by when this will take place.
What curriculum will be used, who will develop it and by when.
When the workshops will be held, where they will be held and who will be in charge of organising this.
How, when and by whom the workshop strategy will be monitored and evaluated.
What resources will be needed to implement each step.
A detailed budget.
This can then be summarised in:
an output plan for the project;
a human resourcing plan for the project;
a time plan for the project;
a summarised budget or financial plan for the project.

The output plan summarises the ―things‖ that will be produced e.g. 200 workshops, 4 000 trained teachers, a
curriculum published in a format that can be replicated, 25 trained trainers, etc. The human resourcing plan provides
details of how the human resourcing needs of the project will be met e.g. two skilled trainers from current staff of
organisation, 25 trainee trainers in whom capacity will be built to run training and who will be selected from
community-based organisations in each region, management by the Head of the Training Department, an
administrator to deal with logistics in each region, seconded from a local organisation, etc.

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3.3. Regular planning (step by step)

Once you have done the ground work, focusing on being thorough and rigorous, you are ready to move on in the
planning process, based on a solid foundation. In this section, we go through the normal steps of planning to give
you an overview of what needs to be included in a planning process. This section looks briefly at the following steps
in a planning process:

Step 1: Progress review

Step 2: Environmental scan

Step 3: Review of the strategic framework

Step 4: Review strategy

Step 5: Set new objectives

Step 6: Plan/review structure

Step 7: Do action planning

Although the section assumes an existing organisation or project, the steps are much the same for a new project or
organisation.

3.3.1) Progress review

Step 1 of your planning process should involve a work progress review.

For organisations and projects that have already been functioning for a while, the progress review, against targets set
in the previous planning process, is the logical place to begin planning. Before you can move on, you need to know
what you have achieved, what you have failed to achieve, and why you have or have not met the targets set. You can
also use the SWOT Analysis to help you understand your strengths and weaknesses and the opportunities and
threats in the environment.

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3.3.2) Environmental scan
What is an environmental scan?

An environmental scan (Step 2) is a way of assessing the context in which an organization or project is functioning
and will function. It recognizes that no organisation is an island and that the social, economic, political,
technological, ecological, and legislative contexts in which a project or organisation functions have a profound effect
on the ability of the organisation or project to do their work. The PEST technique will help you to do an
environmental scan but it is also useful to have someone ―paint‖ the broader picture for your project or
organisation. This could be a well-informed person from within the project or organisation, or someone from the
outside who understands both the bigger picture and the sector within which you function. After the input, you
should list the main trends or issues in the environmental context that are likely to affect your organisation over the
next three to five years. It is very useful to do your planning in the context of a background that raises questions
about relevance, challenges and threats, and which enables you to question assumptions (beliefs) you may have had
about the context in which you operate.

3.3.3) Review of the strategic framework

Step 3 is to review the strategic framework within which you have located your organisation or project. For a new
project or organisation, this step would be to establish a strategic framework. When you establish or review your
strategic framework, you look at things like:
vision;
values;
mission;
overall goal or aim;
development goal; project purpose.
The questions you are asking at this point are:
What is our vision? Has it changed? Has any progress been made towards achieving it in the past five years?
What are the values that underpin our work? Are we adhering to our values? Is there a clash between our values
and what we do or how we do it?

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Does our mission statement still describe what we are, what we do and who we do it for, accurately?
Are we clear about our overall goal? About what we want the overall outcome of our work to be?
Are we clear about the broader goal towards which any particular specific goal, project or objective should be
contributing?
Is there a clear link between this development goal and the overall goal?
Is there a clear link between our project purpose (the immediate goal of our work) and the development goal and
overall goal?

What are the elements of a strategic framework?

Your organisational vision is your overall picture of how you would like things to be as a result of your efforts and
those of others working in related fields. It is how your organisation sees the ideal society. It is important that you
develop a vision together with Board and staff members. All your plans ought to be focused towards the eventual
achievement of this vision. Your overall goal will focus on a specific aspect of your vision. So, while your vision
might include human rights for all, your overall goal might be poverty alleviation. Your development goal might
then be that all the economically active people in the areas where you work are either employed or self-employed.
Your project purpose might be an increase of those employed or self-employed from 30% to 75% within five years.
There needs to be a logical connection between these levels of goals, with each lower level contributing to the
achievement of the next level up. What you do to achieve this will be the strategic options you have selected.

Your organisational values are the shared values that underpin your work as an organisation and your relationships
with users and other stakeholders. They are what you believe is the right way to do things and to deal with people,
and what you believe about the way that, ideally, the world ought to be organised. Your organisational values will
determine your strategies and your operational principles. If, for example, you have an organisational value that
emphasises doing things with rather than for people, then you are likely to involve beneficiaries, or potential
beneficiaries, closely in your planning process.

Your mission is a description of the work the organisation or project does, and who it is aimed at. Typically, a
mission statement includes a very brief summary of what you do, how you do it and for whom. An example of a
mission statement in a development context might be:

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We work to improve the conditions under which elderly people in our society live by providing people over the
age of 65 who have limited resources with transport, meals and the opportunity to socialise.

Note: Different people give different names to parts of the strategic framework. The important thing is to
have a framework that is logical and coherent.

3.3.4) Review of strategy

Step 4 is the review of, or the selection of, a strategy. Your strategy is the approach, and within that, the
projects and activities you choose to carry out in pursuit of your vision and goals, and in the context of your
values and mission statement. The questions you are answering here are: What can we do that will help us
achieve our project purpose? What activities will do this? Does what we are doing make sense in terms of our
strategic framework? Are there other things we should be doing?

So, for example: An organisation that served the needs of the elderly did a survey of its beneficiaries as part of
the groundwork for its planning process. It realised that the need to generate an income was more important to
its target group than social gatherings to address loneliness, one of its activities in the past. It decided to focus
on this aspect of the needs of elderly people and, therefore, to convert its recreation centre into an industrial
park where elderly people would be encouraged and supported in setting up micro-businesses. It felt that this
would be a more useful strategic choice in its efforts to improve the quality of life of elderly people, and the
elderly people involved in its projects agreed. It formed a developmental partnership with an NGO that
supported the development of micro and small businesses.

Another example: An organisation that had as its project purpose increased self-employment in a particular
area had chosen the strategy of training people in production and entrepreneurial skills to achieve this purpose.
Initially the organisation felt it was doing very well because it was meeting all its training targets. However, in
monitoring and evaluating its work, it found that most of the people trained were still unemployed after a year.
It decided to redirect some of its resources towards providing business support services for micro-enterprises.
Within a year, 70% of the people being trained had set up in their own micro-businesses.

You need to be constantly reviewing your strategy on the basis of monitoring and evaluation so that you can
change it if necessary. While your strategic framework (your vision and overall goal) is fairly fixed, your
strategy is not – you can and should change it if it doesn’t work.
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3.3.5) Setting new objectives

Step 5 involves setting new objectives, based on the revised strategy, or adjusting the existing objectives where
necessary, or setting objectives from scratch for a new organisation.

All objectives need to be SMART:

S = Specific

M = Measurable

A = Agreed upon (by everyone involved)

R = Realistic

T = Time bound

So, for example, a SMART objective might be: Support the set- up four micro-businesses, functioning out of the
newly established industrial park, and owned by people over the age of 65 who previously used the recreation
centre, before the end of the year.

or Train a group of at least 20 elderly people (over 65) in production and entrepreneurial skills by the end of
March next year.

or Set up a business support service able to offer bookkeeping, tool hire, and marketing advice services to
micro-enterprises by the end of July next year.

Once you have decided on your strategy or strategies, you need to formulate SMART objectives.

3.4) Planning tools

There are many tools you can use when you do your planning. We have included some of them. This does not
mean that you have to use them. If you think they might be useful, then use them. It is possible to do your
planning without any clever techniques or tools at all, simply by asking the right questions. Do not fall into the

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trap of making your planning process just a move from one technique to the next. The techniques simply help
you to focus your thinking – it is the thinking that is important.

Purpose: To identify the internal strengths and weaknesses of an organisation or project, and the external
opportunities and threats the organisation or project face. The best time to use a SWOT Analysis is after you
review progress and after you have done some sort of environmental scan. The process can be done for the
organisation, departments, projects and units. It can make a useful contribution to an organisational diagnosis.

SWOT stands for:

S = Strengths

W = Weaknesses

O = Opportunities

T = Threats

Strengths and weaknesses are factors that are internal to the organisation and can be addressed within the
organisation. Opportunities and threats are external to the organisation and provide challenges to the
organisation.

3.4.2) PEST analysis Purpose: To scan the external environment for forces and trends that may be
opportunities or threats for the project or organisation. To help the project/organisation understand its context.
The best time to use a PEST Analysis is probably after you have had input on ―the big picture‖ and before you
do a SWOT Analysis.

PEST stands for:

P = Political

E = Economic

S = Social

T = Technological

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You could add other categories if you thought they might be useful. e.g. Legislative, Psychological, Cultural,
Ecological.

3.4.3) Futuring

Purpose: To enable a group to free itself of the constraints of current work and context in order to develop a
true vision of how they would like the future to look.

This is probably best done before the group tries to develop a vision or mission statement.

3.4.4) Stakeholder analysis

Purpose: To identify the organisation‗s or project‗s key stakeholders, their concerns and expectations, and to
explore how they influence the organisation.

A stakeholder is anyone or any group or any institution or structure that has any kind of stake in your
organisation or project.

This is a useful exercise to do when you are thinking about partnerships and also before you do your action
planning.

3.4.5) GAP analysis

Purpose: To identify the gaps that need to be addressed between where the organisation is now and where it
aims to be in the future.

This is a good technique to use after you have done a vision and mission statement, an organizational diagnosis,
and an environmental scan, and programme planning. It is a good introduction to planning the internal changes
needed to meet your targets and goals. You need to know where you are, and where you want to be.

3.4.6) Logical Framework Analysis (LFA)

Purpose: The LFA is an overall planning tool. It uses a logframe or matrix (table) with columns and rows to
help you plan a project. The rows represent a hierarchy (top to bottom) of goals and objectives, from overall

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goal to activities, and the columns represent the way in which achievement of these goals and objectives can be
verified (shown to have taken place). This makes the LFA a very good tool for planning for monitoring and
evaluation. Many donors now insist that organizations use the LFA to do their planning. It is, however, a very
complex tool and it does not work if it is not used rigorously.

Although different headings are used by different LFA practitioners, the matrix usually looks

Narrative Summary Objectively Verifiable Means of Verification Important

Indicators Assumptions

Overall
goal/development goal

Result Areas (what

must be achieved in
order to fulfill the
project purpose)

Activities

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CHAP 4: PROJECT MONITORING AND EVALUATION

4.1. Definition of Monitoring and Evaluation

Although the term “monitoring and evaluation” tends to get run together as if it is only one thing, monitoring and
evaluation are, in fact, two distinct sets of organizational activities, related but not identical.

Monitoring is the systematic collection and analysis of information as a project progresses. It is aimed at improving
the efficiency and effectiveness of a project or organization. It is based on targets set and activities planned during
the planning phases of work. It helps to keep the work on track, and can let management know when things are
going wrong. If done properly, it is an invaluable tool for good management, and it provides a useful base for
evaluation. It enables you to determine whether the resources you have available are sufficient and are being well
used, whether the capacity you have is sufficient and appropriate, and whether you are doing what you planned to
do.
Evaluation is the comparison of actual project impacts against the agreed strategic plans. It looks at what you set
out to do, at what you have accomplished, and how you accomplished it. It can be formative (taking place during
the life of a project or organization, with the intention of improving the strategy or way of functioning of the project
or organization). It can also be summative (drawing learnings from a completed project or an organization that is no
longer functioning). Someone once described this as the difference between a check-up and an autopsy!
What monitoring and evaluation have in common is that they are geared towards learning from what you are doing
and how you are doing it, by focusing on:
Efficiency
Effectiveness
Impact

Efficiency tells you that the input into the work is appropriate in terms of the output. This could be input in terms of
money, time, staff, equipment and so on. When you run a project and are concerned about its replicability or about
going to scale, then it is very important to get the efficiency element right.

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Effectiveness is a measure of the extent to which a programme or project achieves the specific objectives it set. If,
for example, we set out to improve the qualifications of all the high school teachers in a particular area, did we
succeed?
Impact tells you whether or not what you did made a difference to the problem situation you were trying to address.
In other words, was your strategy useful? Did ensuring that teachers were better qualified

improve the pass rate in the final year of school? Before you decide to get bigger, or to replicate the project
elsewhere, you need to be sure that what you are doing makes sense in terms of the impact you want to achieve.
From this it should be clear that monitoring and evaluation are best done when there has been proper planning
against which to assess progress and achievements. Monitoring and Evaluation enable you to check the ―bottom
line‖ of development work: Not ―are we making a profit? ‖ but ―are we making a difference? ‖ Through monitoring
and evaluation, you can:
Review progress;
Identify problems in planning and/or implementation;
Make adjustments so that you are more likely to ―make a difference‖.

4.2 Techniques for Monitoring and Evaluation The following techniques are commonly used:
• Earned Value Analysis

• Critical Ratio

(a)Earned Value Analysis

It is a way of measuring overall performance (not individual task) using an aggregate performance measure - Earned
Value. The Earned Value of work performed (value completed) for those tasks in progress found by multiplying the
estimated percent physical completion of work for each task by the planned cost for those tasks. The result is amount
that should be spent on the task so far. This can be compared with actual amount spent. It is all about estimating
percent completion.
For example:
– The 50-50 estimate: 50% is assumed when task is begun, and remaining 50% when work completed.

– 0-100% rule: This rule allows no credit for work until task is complete, highly conservative rule, project always
seem late until the very end of project when everything appears to suddenly catch up.

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– Critical input rule: This rule assigns progress according to amount of critical input that has been used. Labor or
skilled dependent, machine critical input – buy machine complete task – may be misinformation.
– Proportional rule: This rule divides planned (or actual) time-to-date by total scheduled time (or budgeted (or
actual) cost-to-date by total budgeted cost] to calculate percent complete. This is commonly used rule.
The Earned Value Analysis allows us to check the variances. There are three types of variances:
• Cost (spending) variance (CV) – difference between budgeted cost of work performed (earned value) (BCWP)
and actual cost of that work performed (ACWP)
• Schedule variance (SV) – difference between earned value (BCWP) and cost of work we scheduled to perform to
date (BCWS)
• Time variance (TV) –difference between time scheduled for work performed (STWP) and actual time to perform
it (ATWP)
Therefore,
-Cost Variance (CV) = BCWP – ACWP (negative value - cost overrun)
-Schedule Variance (SV) = BCWP – BCWS (negative value - behind schedule
-Cost Performance Index (CPI) = BCWP/ACWP

EXERCISE (1)
A project to develop a country park has an actual cost in month 17 of $350,000, a planned cost of $475,000, and a
value completed of $300,000. Find the cost and schedule variances and the three indexes.

Solution
Planned (Baseline) or (BCWS) = 475,000
Value completed (BCWP) = 300,000
Actual cost (ACWP) = 350,000

- CV = BCWP – ACWP
- SV = BCWP – BCWS
- (CPI) = BCWP/ACWP

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Cost Variance (CV) = 300,000 – 350,000 = -50,000 (negative value - cost overrun)
Cost Performance Index (CPI) = BCWP/ACWP = 300,000/350,000 = 0.86
Schedule Performance Index (SPI) = BCWP/BCWS = 300,000/475,000= 0.63

b) Critical Ratio Analysis A Critical Ratio is an index used to determine how much a task is on schedule. A
value of 1.0 is "on schedule." A value less than 1.0 is behind, and larger than 1.0 is ahead of schedule. The
critical ratio is derived by dividing the time to scheduled completion by the time expected to finish it.
Sometimes, especially large projects, it may be worthwhile calculating a set of critical ratios for all project
activities.

The Critical Ratio= (Actual Progress/Scheduled Progress)* (Budgeted Cost/Actual Cost) If ratio is 1
everything is probably on target. The further away from 1 the ratio is, the more we may need to investigate.

EXERCISE (2) Calculate the critical ratios for the following activities and indicate which are probably on
target and need to be investigated.

Activity Actual Scheduled Budgeted Actual Critical

progress Progress Cost cost ratio (CR)

A 4 days 4days 60 40
B 3 days 2days 50 50
C 2 days 3days 30 20
D 1day 1day 20 30
E 2days 4days 25 25

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4.3. Why is monitoring and evaluation important?
There are several reasons why monitoring and evaluating your project is particularly important for community based
projects:
1. Accountability
When you win funding from an organization, they will usually make it compulsory for you to report back on what
you're doing and what you're spending their money on. You might have agreed targets with them, such as the
number of people your project will reach within a given time. You'll need to monitor your project regularly to
collect this information.
2. To secure future funding
Funding bodies will want to see concrete evidence of the effect your group has to help them decide whether to give
you money. Ongoing monitoring and evaluating of your projects will provide this. It can provide evidence of what a
project has achieved and what might be achieved as this project continues in the future.
3. To check the project's progress against your original plans
It can be easy to lose sight of the original aims you had for your project. Monitoring it on a monthly, quarterly or
yearly basis and checking whether you're still on course to achieve your goals will prevent this. It will also help you
keep an eye on whether you're keeping to your timescales and budgets.
4. To learn from your experience
Proper monitoring and evaluation of your project means you can see what has worked well and what hasn't. You
can then use this information to improve future projects or funding applications.
5.To motivate staff and volunteers
Showing your volunteers and staff real, concrete evidence of the impact their hard work has had will make them
feel great. It can also encourage them to continue working with your group, or to take on new sustainability projects.
It may also spur them on to keep changing their own behavior.

4.4. How can you monitor your project's progress?

Before you begin monitoring, it's important to think about exactly what you want your project to achieve. Then you
can look at how you're going to monitor each of those areas. Doing this thinking upfront should mean that you won't
miss opportunities to gather information along the way, and you'll be able to do a complete evaluation at the end.

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A lot of your monitoring will focus on the hard facts: how much is being spent, and how many homes or people
your project is reaching. However, the qualitative side is important too. Are the expectations of the people
involved in your project being met? What would they like to see done better?

4.5. Developing indicators

Step 1: Identify the problem situation you are trying to address. The following might be problems:
Economic situation (unemployment, low incomes, etc.)
Social situation (housing, health, education, etc.)
Cultural or religious situation (not using traditional languages, low attendance at religious services, etc.)
Political or organizational situation (ineffective local government, faction fighting, etc.)

Step 2: Develop a vision for how you would like the problem areas to be/look. This will give you impact
indicators. What will tell you that the vision has been achieved? What signs will you see that you can measure that
will ―prove‖ that the vision has been achieved? For example, if your vision was that the people in your community
would be healthy, then you can use health indicators to measure how well you are doing. Has the infant mortality
rate gone down? Do fewer women die during child-birth? Has the HIV/AIDS infection rate been reduced? If you can
answer ―yes‖ to these questions then progress is being made.

Step 3: Develop a process vision for how you want things to be achieved. This will give you process indicators. If,
for example, you want success to be achieved through community efforts and participation, then your process vision
might include things like community health workers from the community trained and offering a competent service
used by all; community organizes clean-up events on a regular basis, and so on.

Step 4: Develop indicators for effectiveness. For example, if you believe that you can increase the secondary
school pass rate by upgrading teachers, then you need indicators that show you have been effective in upgrading the
teachers e.g. evidence from a survey in the schools, compared with a baseline survey.

Step 5: Develop indicators for your efficiency targets. Here you can set indicators such as: planned workshops are
run within the stated timeframe, costs for workshops are kept to a maximum of Rwf 1500 per participant, no more
than 160 hours in total of staff time to be spent on organizing a conference; no complaints about conference
organization, etc.

With this framework in place, you are in a position to monitor and evaluate efficiency, effectiveness and impact.

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4.6. Different kinds of information used in Monitoring and Evaluation Information used in monitoring and
evaluation can be classified as:
Quantitative; or
Qualitative.

Quantitative measurement tells you ―how much or how many‖. How many people attended a workshop, how many
people passed their final examinations, how much a publication cost, how many people were infected with HIV, how
far people have to walk to get water or firewood, and so on. Quantitative measurement can be expressed in absolute
numbers (3 241 women in the sample are infected) or as a percentage (50% of households in the area have television
aerials). It can also be expressed as a ratio (one doctor for every 30 000 people). One way or another, you get
quantitative (number) information by counting or measuring.

Qualitative measurement tells you how people feel about a situation or about how things are done or how people
behave. So, for example, although you might discover that 50% of the teachers in a school are unhappy about the
assessment criteria used, this is still qualitative information, not quantitative information. You get qualitative
information by asking, observing, interpreting. Some people find quantitative information comforting – it seems
solid and reliable and ―objective‖. They find qualitative information unconvincing and ―subjective‖. It is a mistake
to say that ―quantitative information speaks for itself‖. It requires just as much interpretation in order to make it
meaningful as does qualitative information. It may be a ―fact‖ that enrolment of girls at schools in some developing
countries is dropping – counting can tell us that, but it tells us nothing about why this drop is taking place. In order to
know that, you would need to go out and ask questions – to get qualitative information. Choice of indicators is also
subjective, whether you use quantitative or qualitative methods to do the actual measuring. Researchers choose to
measure school enrolment figures for girls because they believe that this tells them something about how women in a
society are treated or viewed.
The monitoring and evaluation process requires a combination of quantitative and qualitative information in order to
be comprehensive. For example, we need to know what the school enrolment figures for girls are, as well as why
parents do or do not send their children to school. Perhaps enrolment figures are higher for boys than for girls
because a particular community sees schooling as a luxury and prefers to train boys to do traditional and practical
tasks such taking care of animals. In this case, the higher enrolment of girls does not necessarily indicate higher
regard for girls.

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4.7. How will we get information?
Your methods for information collecting need to be built into your action planning. You should be aiming to have a
steady stream of information flowing into the project or organization about the work and how it is done, without
overloading anyone. The information you collect must mean something: don‗t collect information to keep busy, only
do it to find out what you want to know, and then make sure that you store the information in such a way that it is
easy to access. Usually you can use the reports, minutes, attendance registers, financial statements that are
part of your work anyway as a source of monitoring and evaluation information. However, sometimes you need to
use special tools that are simple but useful to add to the basic information collected in the natural course of your
work. Some of the more common ones are:
Case studies
Recorded observation
Diaries
Recording and analysis of important incidents (called ―critical incident analysis‖)
Structured questionnaires
One-on-one interviews
Focus groups
Sample surveys
Systematic review of relevant official statistics.

4.8. Designing a monitoring and/or evaluation process As there are differences between the design of a
monitoring system and that of an evaluation process, we deal with them separately here.

Under monitoring we look at the process an organization could go through to design a monitoring system.

Under evaluation we look at purpose, key evaluation questions and methodology.

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1. Monitoring
When you design a monitoring system, you are taking a formative view point and establishing a system that will
provide useful information on an ongoing basis so that you can improve what you do and how you do it.

Below is a step-by-step process you could use in order to design a monitoring system for your organization or
project.

Step 1: At a workshop with appropriate staff and/or volunteers, and run by you or a consultant:

Introduce the concepts of efficiency, effectiveness and impact;

Explain that a monitoring system needs to cover all three;

Generate a list of indicators for each of the three aspects;

Clarify what variables need to be linked. So, for example, do you want to be able to link the age of a teacher with
his/her qualifications in order to answer the question:

Are older teachers more or less likely to have higher qualifications?

Clarify what information the project or organization is already collecting.

Step 2: Turn the input from the workshop into a brief for the questions your monitoring system must be able to
answer. Depending on how complex your requirements are, and what your capacity is, you may decide to go for a
computerized data base or a manual one. If you want to be able to link many variables across many cases (e.g.
participants, schools, parent involvement, resources, urban/rural, etc.), you may need to go the computer route. If
you have a few variables, you can probably do it manually. The important thing is to begin by knowing what
variables you are interested in and to keep data on these variables. Linking and analysis can take place later. From
the workshop you will know what you want to monitor. You will have the indicators of efficiency, effectiveness
and impact that have been prioritized. You will then choose the variables that will help you answer the questions
you think are important. So, for example, you might have an indicator of impact which is that ―safer sex options are
chosen‖ as an indicator that ―young people are now making informed and mature lifestyle choices‖. The variables
that might affect the indicator include:
Age
Gender

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Religion
Urban/rural
Economic category
Family environment
Length of exposure to your project‗s initiative
Number of workshops attended.

By keeping the right information you will be able to answer questions such as:


Does age make a difference to the way our message is received?
Does economic category i.e. do young people in richer areas respond better or worse to the message or does it
make no difference?
Does the number of workshops attended make a difference to the impact?
Answers to these kinds of questions enable a project or organization to make decisions about what they do and how
they do it, to make informed changes to programmes, and to measure their impact and effectiveness. Answers to
questions such as:
Do more people attend sessions that are organized well in advance?
Do more schools participate when there is no charge?
Do more young people attend when sessions are over weekends or in the evenings?
Does it cost less to run a workshop in the community, or to bring people to our training centre to run the
workshop?

Step 3: Decide how you will collect the information you need and where it will be kept (on computer, in manual
files).
Step 4: Decide how often you will analyze the information – this means putting it together and trying to answer the
questions you think are important.
Step 5: Collect, analyze, report.

2. Evaluation

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Designing an evaluation process means being able to develop Terms of Reference for such a process (if you are the
project or organization) or being able to draw up a sensible proposal to meet the needs of the project or organization
(if you are a consultant). The main sections in Terms of Reference for an evaluation process usually include:
Background: This is background to the project or organization, something about the problem identified, what
you do, how long you have existed, why you have decided to do an evaluation.

Purpose: Here you would say what it is the organization or project wants the evaluation to achieve.

Key evaluation questions: What the central questions are that the evaluation must address.

Specific objectives: What specific areas, internal and/or external, you want the evaluation to address. So, for
example, you might want the evaluation to include a review of finances, or to include certain specific programme
sites.

Methodology: here you might give broad parameters of the kind of approach you favor in evaluation. You might
also suggest the kinds of techniques you would like the evaluation team to use.

Logistical issues: These would include timing, costing, and requirements of team composition and so on.
i) Key evaluation questions The key evaluation questions are the central questions you want the evaluation process
to answer. They are not simple questions. You can seldom answer ―yes‖ or ―no‖ . A useful evaluation question is:
Thought provoking
Challenges assumptions
Focuses inquiry and reflection
Raises many additional questions

ii) Some examples of key evaluation questions related to a project purpose: The purpose of the evaluation is to
assess how efficient the project is in delivering benefits to the identified community in order to inform Board
decisions about continuity and replicability.
Who is currently benefiting from the project and in what ways?

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Do the inputs (in money and time) justify the outputs and, if so/if not, on what basis is this claim justified?
What would improve the efficiency, effectiveness and impact of the current project?
What are the lessons that can be learned from this project in terms of replicability?
What are the most effective ways in which a project of this kind can address the problem identified?
To what extent does the internal functioning and structure of the organization impact positively on the
programme work?

Note that none of these questions deals with a specific element or area of the internal or external functioning of
the project or organization. Most would require the evaluation team to deal with a range of project or
organizational elements in order to answer them.

iii) Outline of an evaluation report

EXECUTIVE SUMMARY: (Usually not more than five pages – the shorter the better – intended to provide enough
information for busy people, but also to tease people‘s appetite so that they want to read the full report.)

PREFACE: (Not essential, but a good place to thank people and make a broad comment about the process, findings,
etc.)

CONTENTS PAGE: (With page numbers, to help people find their way around the report.)

SECTION 1: INTRODUCTION: (Usually deals with background to the project/organization, background to the
evaluation, and the brief to the evaluation team, the methodology, the actual process and any problems that
occurred.) SECTION 2: FINDINGS: (Here you would have sections dealing with the important areas of findings, e.g.
efficiency, effectiveness and impact, or the themes that have emerged.)

SECTION 3: CONCLUSIONS: (Here you would draw conclusions from the findings – the interpretation, what they
mean. It is quite useful to use a SWOT Analysis.)

SECTION 4: RECOMMENDATIONS: (This would give specific ideas for a way forward in terms of addressing
weaknesses and building on strengths.)

APPENDICES: (Here you would include Terms of Reference, list of people interviewed, questionnaires use.
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