SESSION 2023-24 VIII SEMESTER

KOE-083

ENTREPRENEURSHIP DEVELOPMENT

UNIT -2

Dr. Ranjeet Pathak

ASSISTANT PROFESSOR
DEPARTMENT OF COMPUTER SCIENCE ENGINEERING
 Contents of Unit 2

 Project identification-
 Assessment of viability, formulation, evaluation
 Financing, field-study and collection of information
 Preparation of project report, demand analysis,
 Material balance and output methods, benefit cost analysis,
 Discounted cash flow, internal rate of return method
 Net present value methods.
Previous Year Questions -unit 2
 What is Cost Benefit Analysis.? -2 marks
 What do you mean by Financing?-2 marks
 Explain the various stages of project formulation. -10marks
 What are the main contents of a project report? Explain.-10 marks.
 What is the significance of Discounted Cash Flow Method-10marks
 Describe in detail about the assessment of viability in Project identification-10
 Describe about the Field-study and role of collection of Information in Project
identification-10
 Describe about the preparation of project report and demand analysis in Project identification.-
10
 Identification of Project -introduction
What is the problem that you want to solve?

A good project comes from a good problem definition. It is important to first

identify the problem you want to address, whether it be in your country,
community or school. In general, try to describe what you want to change
and why you want to change it. A way to test the clarity of your problem statement
is to see if you can summarize it in one sentence.
What evidence and/or data do you have that supports the identified
problem
 Identification of Project- introduction
What evidence and/or data do you have that supports the identified problem?
You not only need a good problem definition, but it is also equally important to
have solid evidence and/or data to prove that the problem actually exists. This
implies doing some research on the problem you have identified. Sources of data
and evidence can include statistics, survey results, and information from previous
reports elaborated by International Organizations, Non-Governmental
Organizations (NGOs) and/or government institutions. Data and evidence-based
research add validity to your project. This information is crucial as it will help
others understand why the problem identified is a worthy issue to tackle.
 Identification of Project- introduction
What other initiatives have been implemented that target the same problem?
 It is likely that other youth-led organizations might have already done similar
projects to address the problem you’ve identified.
 Before settling on your project, investigate what other initiatives have been
implemented on the same topic.
 This will be helpful because you can learn from previous results, and the
lessons and challenges from other Projects.
 You might also get new ideas that can improve your project design.
 Identification of Project- introduction
What are the objectives and/or expected results of your project?
What is the project going to be about?
If you had previously identified the problem, it is now time to reflect on what
you want to achieve and how.
Keep in mind that you don’t have to solve every dimension of the problem you
identified.
Be realistic. It is better to have only a few targets (2–4) which can actually be
attained.
 Identification of Project- introduction
Who will your project help?
It is important to know who your project supports and what value it will bring to
them.
Are you benefiting a specific group of people, a community, a particular
geographic area?
Most importantly, how is your project truly addressing their needs?

Don’t assume that you know everything about the beneficiaries, talk to them, ask
questions, this will help you better define your project objectives, and improve the
design of your project.

Plus, this is also a way to ensure community engagement, interest and

participation.
 Identification of Project- introduction
What is the timeframe of your project?
It is important to determine how much time it will take to reach the established
objectives.
A project has a clearly defined timeframe, and we must do our best to stick to it.
In order to establish this timeframe – that could range from three months to a
couple of years – try to consider how many people will be in your team, how fast
you can get the funding to kickstart the project, and how long it will take to
coordinate with the different stakeholders involved in the project.
 Identification of Project
Objectives
 Coordinate with the team (stakeholders and business leaders) and understand
problems and identify their root causes.

 Elaborating the project details and ensuring the project ideas can contribute to
the goals of the organisation.

 To understand what it is precisely you want to achieve with your business in the
future.

 Ensure that all necessary resources are allocated to work together

collaboratively towards achieving success at meeting their goals and objectives
within budget limitations.
 Identification of Project
Stages of project identification
Initiation: The purpose of initiation is to gather and analyse the projects'
requirements and describe the stages involved in the project.
The objective is to prioritise the tasks and allocate the resources based on
availability and conditions. Identify the project sponsors and create a scope
document to avoid any miscommunication.
Feasibility: The purpose of feasibility is to develop parameters and provide a wide
range of solutions to meet those requirements.
The report will contain answers to any problem arising and elaborate on the project
details.
Project schedule: Define a road map and estimate the budget, resources, level of
effort required depending upon the project's complexity. Create a goal and a
series of tasks to be completed to accomplish them. Estimate the time needed to
complete each task and assign them to the personnel responsible for execution.
Risk analysis: Identify any potential risks involved and describe what you will
do to mitigate or manage them. Create a plan to implement specific steps to
reduce the impact of hazards. Monitor and categorise the risks based on their
threat level, gather resources in advance to deal with the effects, and ensure the
required backup is functioning at its optimum level.
Identification close out: The cost estimates are checked for accuracy, and the
date of completion is confirmed. The identification closes out should include an
analysis of the resource usage during the project, including materials, labour,
subcontractors, and equipment costs. It provides a final opportunity to review all
supporting documentation and ensure that everything is accounted for, including
any discrepancies such as missing or damaged items.

Approval: This phase consists of the assessment and support of the proposals.
Identify any threats and present the solutions to deal with them. The
recommendations are approved by stakeholders or project managers, and any
changes that need to be made will be sent back to the team for further analysis.
 Identification of business opportunity
 Market Research
 Problem Solving
 Technology Trends-innovation
 Networking and Observations
 Personal Passion and Expertise
 Demographic Analysis- target audience
 Competitor Analysis
 Regulatory Environment –legal, rules regulation
Searching of business opportunities:
Market Research:
Use tools such as market reports, industry publications, and online databases to
gather relevant data.
Identify Trends:
Stay updated on current trends, both within your industry and in broader
economic, social, and technological landscapes.
Look for emerging technologies, changing consumer preferences, and cultural
shifts that may create opportunities.
Networking:
Attend industry conferences, trade shows, and networking events to connect with
professionals and entrepreneurs.
Discuss potential opportunities with peers, mentors, and industry experts.
Global Trends
Customer Feedback:
Pay attention to customer feedback, reviews, and suggestions for improvement on existing
products or services.
Online Platforms:
Explore online platforms, forums, and communities related to your areas of interest.
Engage in discussions, ask questions, and observe conversations to identify common issues or
needs.
Entrepreneurial Communities:
Join entrepreneurial communities, both online and offline, to exchange ideas and experiences
with like-minded individuals. Platforms like LinkedIn, Meetup, or industry-specific forums
can be valuable resources.
Franchise Opportunities
Start-up Incubators and Accelerators:
Explore start-up incubators and accelerators that support new businesses. These programs
often provide mentorship, resources, and funding opportunities for entrepreneurs.
E-commerce Opportunities.
 Assessment of viability
The assessment of viability involves a thorough evaluation of the feasibility,
sustainability, and potential success of a project, initiative.
This process involves considering various factors across different dimensions.
Here is a general framework for assessing viability:
Market viability
Technical viability
Financial viability
Social and environmental viability
Market Viability

 Market Environment e.g. size, sustainability, potential market, target market,

potential value
 Competitors
 Similar Products
 Pricing
 Packaging
 Distribution to markets
 Promotion/Advertising
Market Viability
Market Research:
• Conduct thorough research to understand the target market.
• Identify potential customer segments and their needs.
Competitive Analysis:
• Analyze competitors to understand the existing landscape.
• Identify unique selling points and areas for differentiation.
Demand and Supply:
• Evaluate the demand for the product or service.
• Assess the project's ability to meet or exceed that demand.
Market Positioning:
• Develop a clear positioning strategy in the market.
• Highlight unique features that resonate with the target audience.
 Technical Viability
Is it possible to develop the product with the available technology in the
company?
Is the organisation equipped with the necessary technology for project
completion?
Are there technically strong employees who can deliver the product on time
and within budget using the available technology?
Is there scope in the company's budget to add more technical resources?
Is the available technology the right choice to help the product team save
time and complete development within budget?
Does the customer require specific technology, or is the client open to
developing the product, irrespective of the technology ?
 Technical Viability
Is it possible to develop the product with the available technology in the
company?
Is the organisation equipped with the necessary technology for project
completion?
Are there technically strong employees who can deliver the product on time
and within budget using the available technology?
Is there scope in the company's budget to add more technical resources?
Is the available technology the right choice to help the product team save
time and complete development within budget?
Does the customer require specific technology, or is the client open to
developing the product, irrespective of the technology ?
 Technical Viability
Technology Requirements:
• Identify and evaluate the necessary technology and infrastructure.
• Ensure compatibility and efficiency in implementing technical
solutions.
Technical Expertise:
• Assess the team's technical skills and capabilities.
• Consider potential training or recruitment needs to meet technical
requirements.
Risk of Technological Obsolescence:
• Anticipate rapid changes in technology that may affect the project.
• Develop strategies to adapt to emerging technologies.
 Financial Viability

Start up costs
Working Capital
Operating costs
Raw material costs
Overall return on investment
Overall profitability
Breakeven point
 Financial Viability
Costs and Expenses:
• Conduct a detailed analysis of all project costs, including initial investments
and operational expenses.
• Account for contingencies and unforeseen expenses.
Revenue Generation:
• Develop realistic revenue projections based on market demand.
• Consider various revenue streams and their sustainability.
Return on Investment (ROI):
• Calculate the expected ROI to gauge project profitability.
• Assess the time it takes to recoup the initial investment.
Cash Flow:
• Analyze the project's ability to generate positive cash flow.
• Ensure the availability of funds to meet financial obligations.
 Social and environmental Viability
Project relationship with society .
Impact on health and their social status
Is the project socially harmful
Is it will bring any social or cultural change
It should not harm environment and other resources .
Interventions in or near natural habitat areas.
Interventions in cultural heritage areas.
Interventions that have repercussions on indigenous communities.
Interventions on previously occupied land, which require
involuntary resettlement.
 Social and environmental Viability
Environmental Impact:
Evaluate the project's impact on the environment.
Implement sustainable practices to minimize negative effects.
Social Responsibility:
Consider the project's contribution to social well-being.
Develop initiatives that benefit the community and stakeholders.
Stakeholder Engagement:
Engage with stakeholders to understand social and environmental
concerns.
Incorporate feedback into project planning and implementation.
FINANCE
Finance, the process of raising funds or capital for any kind of expenditure.
Consumers, business firms, and governments often do not have the funds
available to make expenditures, pay their debts, or complete other transactions and
must borrow or sell equity to obtain the money they need to conduct their
operations.
Savers and investors, on the other hand, accumulate funds which could earn
interest or dividends if put to productive use.

Capital Budgeting – Selection of Investible Projects

Capital Structure – Decisions regarding Mixing of Funds for Capital Formation

Dividend Policy – Usage of Excess Funds to Repay Shareholders or to be

Reinvested
Key Finance Terms
These are some key finance terms you should be familiar with.
Asset: An asset is something of value, such as cash, real estate, or property. A business
may have current assets or fixed assets.
Liability: A liability is a financial obligation, such as debt. Liabilities can be current or
long-term.
Balance sheet: A balance sheet is a document that shows a company's assets and its
liabilities. Subtract the liabilities from the assets to see the firm's net worth.
Cash flow: Cash flow is the movement of money into and out of a business or
household.
Equity: Equity means ownership. Stocks are called equities, because each share
represents a portion of ownership.
Liquidity: Liquidity refers to how easily an asset can be converted to cash. For
example, real estate is not a very liquid investment, because it can take weeks or
months to sell.
 SOURCES OF FINANCE
There are several sources of finance for entrepreneurs looking to get their business
off the ground and one should consider some of these alternative sources before
one ask friends and family members for start up money.
Generally there are two sources of finance such as, internal and external.
Internal Sources: Internal sources are those, which are owned by the
entrepreneur himself and the money is invested as equity.
The sources of finance derived from the enterprises assets or activities also come
under this category.
Entrepreneurs can create financial assistance internally from the following sources:-

 Personal investment

 Deposits and loans given by the owner

 Personal loan from provident fund, life insurance policy etc.

Playing back of profits into one’s own enterprise.

External Sources:-
Several financial institutions like development banks, commercial banks,
financial corporations etc. help entrepreneurs raise funds.
These are classified as external sources from which the entrepreneur can seek
financial assistance as well.
Entrepreneurs can create financial assistance from the following sources:
 Borrowings from friends and relatives
 Borrowings from the commercial banks for working capital.
 Term loans from development financing institutions like IDBI, SIDBI, IFCI,
Ltd, ICICI Ltd.
 Hire-purchasing or leasing facilities from national small industries
corporations, State Small Industries Development Corporations, etc.
 Seek capital loan from the financial institutions as well as commercial banks.
Credit facilities provided by different financial institutions as well as
commercial banks.
Capitalization
Capitalization means the amount of capital invested in a business.
The capital of the company may comprise various types of securities such as
common and preferred stock, debentures, bonds and long term loans which are
summed up in the capital account on a balance sheet.
This invested capital and debt, generally of the long-term variety, comprises a
company’s capitalization, i.e., a permanent type of funding to support a company’s
growth and related assets.
Capitalization is the balance sheet value of stocks and bonds out stands”. -
Bonneville and Dewey.
Par value:
It is the nominal value or face value of a share, which is determined by the company at
the time of issuing shares. Par value is the minimum price at which a share can be
issued and is also the amount that the company will have to repay to shareholders in the
event of liquidation.
Market Value:
It is determined by factors of demand and supply in a stock market. It is
dependent on a number of considerations, affecting demand as well as supply side.
Book Value:
It is calculated by dividing the aggregate of the proprietary items – like share capital,
surplus and proprietary reserves – by the number of outstanding shares.
Real Value:
It is found out by dividing the capitalised value of earnings by the number of
outstanding shares. Before the earnings are capitalised, they should be calculated
on an average basis.
 Capitalisation

Book Value = Real Value (Fair capitalisation)

Book Value > Real Value (Over-capitalisation)

Book Value < Real Value (Under capitalisation)

Over Capitalisation
According to Bonneville, Dewey and Kelly, “When a business is unable to earn

a fair rate of return on its outstanding securities, it is over-capitalized.”

Gerstenberg opines that “a corporation is over-capitalized when its earnings are

not large enough to yield a fair return on the amount of stocks and bonds that

have been issued.”

Over Capitalisation

Many have confused the term ‘over-capitalisation’ with abundance

of capital and ‘under-capitalisation’ with shortage of capital.
Over-capitalisation has nothing to do with redundancy of capital in
an enterprise. On the other hand, there is a greater possibility that
the over-capitalised concern will be short of capital.
When we speak in terms of over-capitalisation we always have the
interest of equity holders in mind.
Causes of over-capitalization:
The following are the cases for over-capitalisation:
i) Promotion with inflated asset:
The promotion of a company may entail the conversion of a partnership firm or a
private company into a public limited company and the transfer of assets may be
at inflated prices which do not bear any relation to the earning capacity of the
concern. Under these circumstances, the book value of the corporation will be
more than its real value.

ii) The incurring of high establishment or promotion expenses (ex: good will,
patent rights) is a potent cause of over-capitalisation.
If the earnings later on do not justify the amount of capital employed, the
company will be over-capitalised.
Causes of over-capitalization:
iii) Inflationary conditions:
Boom is a significant factor for making the business enterprises over-capitalised. The
newly started concern during the boom period is likely to be capitalised at a high figure
because of the rise in general price level and payment of high prices for the property
assembled.
iv) Shortage of capital:
The shortage of capital is also a contributory factor of over-capitalisation, the
inadequacy of capital may be due to faulty drafting of the financial plan. Thus a major
part of the earnings will not be available for the shareholders which will bring down
the real value of the shares.
v) Defective depreciation policy:
It is not uncommon to find that many concerns are over-capitalised due to insufficient
provision for depreciation/replacement or obsolescence of assets. The efficiency of the
company is adversely affected and it is reflected in its reduced profit yielding capacity.
Causes of over-capitalization:

vi) Liberal Dividend Policy:

If corporations follow liberal dividend policy by neglecting essential provisions,
they discover themselves to be overcapitalized after a few years when book value
of their shares will be higher than the real value.

vii) Taxation Policy:

Over-capitalisation of an enterprise may also be caused due to excessive taxation
by the Government and also their basis of calculation may leave the corporations
with meagre funds.)
 Effects of over capitalisation:
 Over-capitalisation affects the company, the shareholders and the society as a
whole.
 The confidence of Investors in an over-capitalised company is injured on
account of its reduced earning capacity and the market price of the shares which
falls consequently.
 The credit-standing of a corporation is relatively poor.
 Consequently, the company may be forced to incur unwieldy debts and bear the
heavy loss of its goodwill In a subsequent reorganization.
 Effects of over capitalisation:
 The Shareholders bear the brunt of over capitalization doubly.
 Not only is their capital depreciated but the income is also uncertain and mostly
irregular.
 Their holdings have little value as collateral security.
 An over-capitalised company tries to increase the prices and reduce the quality
of products, and as a result such a company may liquidate.
 In that case the creditors and the Labourers will be affected. Thus it leads to the
mis­application and wastage of the resources of society.
Evils or Disadvantages of Over-Capitalisation
(i) Poor Credit-Worthiness: When a company sells its share at less than their
nominal value, i.e., less than at par, it suffers from poor credit-worthiness.
Naturally, it becomes very difficult for the company to raise funds by further issue
of shares as and when necessary.
(ii) Reduction in the Rate of Dividend: Since the capital is not utilized properly,
i.e., the company cannot effectively use its capital employed the rate of return
must be low and, consequently, the value of shares in the market may go down.
Evils or Disadvantages of Over-Capitalisation

(iii) Loss to Shareholders: The shareholders, under the condition of over-

capitalisation, are victimised and put in a very awkward position. In other words,
they are in a fix as to whether they should sell the shares or retain it.
If they want to sell, they will have to suffer heavily because of the lower price
and, again, if they retain them, they will get a very poor rate of return by way of
dividend.
(iv) Loss to Employees and Labourers: The employees and labourers suffer
since they cannot receive adequate salaries and wages owing to lower profit.
(v) Loss to Creditors: Creditors may have to suffer since they may have to
accept a lower rate of interest, and suffer permanent loss of capital in case of
liquidation.
Under-Capitalisation:
Generally, under-capitalisation is regarded equivalent to the inadequacy of capital
but it should be considered as the reverse of over-capitalisation i.e. it is a
condition when the real value of the corporation is more than the book value.

The following are the causes for under-capitalization:

1. Underestimation of earnings:
Sometimes while drafting the financial plan, the earnings are anticipated at a
lower figure and the capitalisation may be based on that estimate; if the earnings
prove to be higher the concern shall become under-capitalised.
2. Unforeseeable increase in earnings:
Many corporations started during depression find themselves to be under-
capitalised in the period of recovery or boom due to unforeseeable increase in
earnings.
Under-Capitalisation:
3.Conservative dividend policy:
By following conservative dividend policy some corporations create adequate
reserves for depreciation, renewals and replacements and plough back the
earnings which increase the real value of the shares of those corporations.
4. High efficiency maintained:
By adopting ‘latest techniques of production many companies improve their
efficiency. The profits being dependent on the efficiency of the concern will
increase and, accordingly, the real value of the corporation may exceed its ‘book
value
Effects of under-capitalisation:

The following are the effects of under-capitalisation:

1. Causes wide fluctuations in the market value of shares.

2. Provoke the management to create secret reserves.

3. Employees demand high share in the increased prosperity of the

company.
 Disadvantages of Undercapitalization
(i) Conflict between labour and management.
Higher rate of earning encourages workers to demand higher increase in the wages.
Management does not meet their demand fully, so the conflict between labour and
management starts.
(ii) Consumers’ feeling of exploitation. Declaration of dividend at higher rates
creates a feeling among Consumers that they are being exploited, because the
company instead of decreasing price of the commodity is increasing the dividend
rates.
(iii) Manipulation in the value of shares. The management indulges in the
manipulation of the value of shares and exploits shareholders.
(iv) Higher rates of taxation. Earnings at higher rate attract the government for
levying taxes at higher rates.
 Project Formulation
Project formulation can be defined as the systematic step-by-step
development of a project idea for the eventual objective of arriving
at an investment decision.
In fact it is a careful and scientific mechanism which enables the
entrepreneur to achieve the project objective with the minimum
expenditure and adequate resources.
 Project Formulation – Elements
 Project formulation or the development of project has different stages. These are
defined the elements of the project formulation. Normally an entrepreneur goes
through these sequential stages:

 Feasibility Analysis  Input Analysis

Techno-Economic Analysis Financial Analysis
Project Design and Network  Social Cost-Benefit Analysis
Analysis.  Pre-investment Appraisal
Project Formulation – Elements
Feasibility Analysis : As it is examined in the context of internal and external
constraints, the entrepreneur may face three alternatives.
 First the project idea seems to be feasible, second it is not feasible and third is a
state of confusion with inadequate data.
 Depending upon these alternatives, the entrepreneur moves ahead, as if it is
feasible-proceed to the second step.
 If not feasible abandon the idea. If sufficient data is not available-make more
efforts to collect the required data to come to a conclusion
Project Formulation – Elements
Techno-Economic Analysis :
In this step, estimation of project demand potential and the choice of optimal
technology is made

It also indicates whether the economy is in a position to absorb the output of the
project.

The size of the project and technology used depend very much on the demand
potential. Hence, the techno-economic analysis may be described as the
combination of two steps.

The first is related with the determination of the maximum feasible project
output and
the second is with the selection of the optimal technology to get this output.
 Project Formulation – Elements
Project Design and Network-Analysis : This defines individual activities and their
interrelationship with each other which are being performed to constitute the
whole project.
 This identifies a detailed work plan including all events with time allocation and
presented in a network drawing.
 Network analysis is carried out to identify the optimal course of action, so as to
execute the project within the minimum time keeping in view the available
resources.
Project Formulation – Elements
Input Analysis : Project is the combination of several activities required to convert
an idea into a reality.
 Each activity requires certain input to be complete successfully.

 Input analysis is primarily concerned with the identification, quantification and

evaluation of the inputs required during the construction and also during the
operation of the project.

 Inputs include all materials as well as the human resources.

 Both recurring and non-recurring resources must be considered.

 Input requirements constitute the basis of cost estimates of the project and are,
therefore, necessary for financial analysis or cost-benefit analysis of any project.
 Project Formulation – Elements
Financial Analysis : Finance may be considered as the life-blood of a project.
Financial aspects of an investment proposition have a significant impact on the
acceptability or rejection of a project.
This analysis provides the feasibility report of any project to the entrepreneur to
make decision about the project.
It seeks to find out whether the project will generate revenues to realize the ultimate
objective for which it is being designed.
It reduces investment propositions to one common scale so as to permit comparison
and eventual investment decision.
 Project Formulation – Elements
Cost-Benefit Analysis : This is mainly to find out the impact of the project on the
society. As financial analysis will provide the profitability point of view for any
project. the cost-benefit analysis will consider the project from the national
viability point of view.
 The methods of estimating the shadow prices or input prices, social discount
rate, etc., are to be explained and the calculations are to be presented in separate
statements or tables.
 However, most of the data obtained from the financial analysis could be
adjusted to reflect the true social values and use.
 This information gathered would be used mostly for providing the profit criteria
for public project appraisal and evaluation.
 Social cost-benefit analysis is now an internationally recognized system of
project formulation.
 Project Formulation – Elements
Pre-investment Appraisal : The results of all above defined analysis and
steps i.e., the feasibility analysis, the techno-economic analysis, the design and
network analysis etc are consolidated in this step to provide a final and formal
shape to the project.
At this stage, the project is presented in such a way that the project-sponsering
body, implementing body and other consulting agencies could be in the position
to take decision about the project's acceptance or otherwise. It involves selection
of the project appraisal format, its contents and form of presentation.
 Project evaluation

Project evaluation is a process that is used in monitoring and evaluation

practice to assess the effectiveness and efficiency of a project.

It involves systematically collecting and analyzing data on project activities,

outputs, outcomes, and impacts in order to determine the extent to which

project objectives have been achieved and identify areas for improvement.
 project evaluation
Project evaluation typically involves the following steps:
1. Planning the evaluation: This involves defining the evaluation questions,
identifying the data sources and methods, and developing a plan for data collection
and analysis.
2. Collecting data: This involves gathering data on project activities, outputs,
outcomes, and impacts using various methods such as surveys, interviews, and focus
groups.
3. Analyzing data: This involves organizing and examining the data collected during
the evaluation, to identify patterns, trends, and relationships, and to determine the
degree to which project objectives have been met.
 project evaluation
4. Drawing conclusions and making recommendations: Based on the analysis of
the data, conclusions are drawn about the effectiveness and efficiency of the
project, and recommendations are made for improving future project
implementation.
5. Reporting the findings: The evaluation findings are communicated to
stakeholders in a clear and concise manner, highlighting the strengths and
weaknesses of the project and providing recommendations for improvement.
 Project evaluation
Types of Project Evaluation
Pre-project evaluation
 By ensuring that all stakeholders are aware of the project's objectives, this
evaluation ensures that it is carried out successfully.
 By emphasising challenges including resource availability, budgetary
constraints, and technology requirements, early feasibility assessments facilitate
early decision-making and efficient resource allocation.
 To increase overall efficiency and the likelihood of successful outcomes, this
review process may be incorporated into project planning
Project evaluation-types
Ongoing evaluation
These indicators include keeping an eye on the budget, assessing the proportion of
tasks completed, and rating the overall calibre of the job.
You may accurately assess project progress and guarantee conformity with the
original objectives and goals by using these indicators.
The team stays on track and constantly works towards intended results when it
focuses its attention on the original project vision.
Post-project evaluation
A thorough examination of a project's results and effects must be done when it is
finished.
This evaluation involves assessing how successfully the project met its original
aims and objectives. Assessing the results provide information on whether the
intended outcomes were achieved and if the project's deliverables were
effectively met.
 Project evaluation- types
Self-evaluation
Examining how their job contributes to the bigger aims and goals is a part of these
evaluations. Individuals may enhance their capacity to cooperate successfully
inside the team by recognising their talents and shortcomings, quantifying their
successes, and comprehending the extent of their impact.
External evaluation
Engaging outside organisations to evaluate your work is an alternate strategy. As
they have no past ties to or engagement in the project, these organisations
contribute objectivity to the appraisal process. This objectivity raises the
evaluation's and its results' credibility. Projects with multiple stakeholders or
complicated components that call for a thorough analysis benefit especially from
external reviews.
 Evaluation-Criteria
Identify the project objectives: To develop relevant evaluation criteria, you need to have a
clear understanding of the project’s objectives. These objectives should be SMART
(specific, measurable, achievable, realistic, and time-bound).
Identify the stakeholders: Identify the stakeholders who will be impacted by the project,
including beneficiaries, sponsors, funders, and others who may have an interest in
the project.
Define the criteria: Based on the project objectives, stakeholders, and other relevant factors,
define the criteria that will be used to evaluate the project. Common criteria include
efficiency, effectiveness, impact, sustainability, and stakeholder satisfaction.
 Evaluation-Criteria
Develop indicators: Once you have identified the criteria, develop specific
indicators that will be used to measure each criterion. Indicators in
monitoring and evaluation should be measurable, and there should be clear
definitions of what constitutes success or failure.
Assign weights: Assign weights to each criterion to reflect its importance
relative to the others. The weights should reflect the project’s overall goals and
objectives.
Establish benchmarks: Establish benchmarks for each criterion, which will serve
as the standard against which project performance will be evaluated.
 Evaluation-Criteria
Develop data collection methods: Develop data collection methods to gather the
data needed to evaluate the project against the established criteria. This may
include surveys, interviews, observation, or other methods.
Analyze data and report results: Analyze the data collected and report the results,
highlighting successes and areas for improvement. The evaluation report should
be shared with all stakeholders engaged in M&E activities to ensure that they
are aware of the project’s performance and can provide feedback.
 Effective evaluation criteria and gather the data needed to assess project
performance.
 Collection of information
Person engagement for information collection
Sources of information
 Primary sources – (direct association with project ) Wholesaler , agents ,
transporter, competitors etc
 Secondary sources - News , journals ,
 internets etc
Field Study
Select Study Sites: Identify the locations or sites where the project was implemented and
where data will be collected. Consider factors such as project reach, diversity of
stakeholders, and representativeness of different contexts.
Choose Data Collection Methods:
Surveys: Administer questionnaires to project participants, beneficiaries, or stakeholders to
gather feedback and perceptions.
Interviews: Conduct structured or semi-structured interviews with key informants, project
staff, or community members to obtain in-depth insights.
Focus Groups: Facilitate group discussions with project stakeholders to explore specific
themes or issues in depth.
Observation: Systematically observe project activities, events, or outcomes to assess
implementation fidelity and quality.
Document Review: Review project documents, reports, and records to gather quantitative
and qualitative data on project outputs and outcomes.
 Field Study
Develop Data Collection Tools: Develop or adapt data collection tools such as
survey questionnaires, interview guides, observation checklists, and data extraction
forms. Ensure that these tools are aligned with the evaluation framework and
objectives.
Obtain Permissions and Access: Obtain necessary permissions and approvals to
access project sites and engage with project stakeholders. Respect ethical
considerations and privacy concerns throughout the data collection process.
Train Data Collectors: Provide training to data collectors on research
methodologies, data collection techniques, ethical standards, and safety protocols.
Ensure that data collection is conducted professionally and accurately.
 Field Study
Execute Data Collection: Implement the planned data collection methods in the
field according to the evaluation framework. Collect relevant data from project
participants, beneficiaries, stakeholders, and other sources.
Maintain Objectivity and Quality: Maintain objectivity, neutrality, and quality
standards throughout the data collection process. Minimize biases and ensure data
reliability and validity through rigorous data collection protocols and quality
assurance measures.
Analyze Data: Analyze the collected data using appropriate quantitative and
qualitative analysis techniques. Summarize and interpret the findings in relation to
the evaluation objectives and criteria.
Draw Conclusions and Recommendations: Synthesize the findings into clear
conclusions about the project's performance, strengths, weaknesses, and areas for
improvement.
 Demand analysis
Meaning of Demand
By demand we mean the various quantities of a given commodity or service which
consumers would buy in one market in a given period of time at various prices, or
at various incomes, or at various prices of related goods.

Therefore, the demand for a good is made up of the following three things:
the desires to acquire it
the willingness to pay for it, and
the ability to pay for it. In other words.

Demand = Desire to acquire + Willingness to pay + Ability to pay

 Demand analysis- Steps
1. Market Selection
Demand is linked to a market. Without knowing the market properly, demand
cannot be analyzed. Every business would be operating in a single or multiple
markets but it should be clearly known. The first step is understanding the market
and knowing the demand trends for the particular product or service.
2. Product/Service category analysis
Next step would be to make sure which product or service is being used to analyze
the demand. A company may be having a product portfolio of 20 products. Total
demand would not give a picture at an individual level. It may happen that demand
is huge for 5 categories and low for the rest of 15 but still overall demand is high.
For analysis, the product category has to be selected. e.g. if a company is selling
smart devices it needs to select phones or the tablets only for its purpose
 Demand analysis
3. Understanding Business Parameters
Demand is never constant across a single year or a time. A less demand in a
particular month may not be a sign of an issue with the product line but it may be
that due to climate change, the demand of an item like an air conditioner may go
low but it may again rise in summer season.
4. Understanding the competitors and partner trends
For an accurate demand analysis, we also need to see what our partners, vendors
and suppliers are predicting in the market as they are also in the same market and
product category. Also competitors performance and past sales can help us analyze
the demand correctly.
 Demand analysis
Demand Analysis Parameters
The key drivers while determining demand are:
1. Product's own price
Price of the product plays an important role in demand analysis. If the price is high
as compared to competitors or what the customer can pay, the demand would
be affected.
It can be low or high depending upon the price point of the product or service.
2. Customer income
They buying power of customer would definitely impact the demand of a product.
If the product or service is offered at a price point more than the affordability of a
customer group then the demand would be low hence customer income needs to
be analyzed for demand.
 Demand analysis
3. Price of competitor goods

As we discussed in the first 2 points about price and buying power, competitor's
price adds to the equation and can affect the demand of product/service. If
competitor is priced lower then the demand of that particular product would be
more and vice versa. It can be different scenario in case of luxury of niche
products.

4. Tastes & requirements of the customer

Consumer behavior has be to taken into account. The product or service has to align
with the customer's preferences else there would be no demand for the product.
 Demand analysis
5. Expectations
Sometimes the customer has expectations from a new or existing product based on
the overall industry landscape. e.g. if every competitor in the market is offering free
warranty service but one company doesn't then most likely it would not be able to
meet the customer expectations.

6. Number of customers in the market

The potential market is an important parameter for demand analysis as the
customers drive the demand. if the customers are too low then even though the first
5 points are in favor still the demand would never rise as the customer base is too
small for a viable business.
 Break even Analysis
 The X-axis shows the number of units sold.
 The Y-axis shows the sales revenue generated in dollars.
 The Income line shows the amount of revenue generated in dollars as an
increasing number of units is sold.
 The Costs line shows how the costs incurred by the business change as a growing
number of units is sold.
 When you sell a low number of units, your costs are higher than your revenue,
and you’re making a loss (shaded red in the diagram).
 At the point where revenue and costs intersect on the diagram, BEP, total costs
are the same as revenue, and you are neither making a profit or a loss.
 When you sell a high number of units, your costs become less than your revenue,
and you’re making a profit (shaded green in the diagram).
 Time value of money
A core principle of finance is that $10 today is worth more than $10 a year from
now.

This principle is the “time value of money” concept, and it’s the foundation for
DCF analysis.

Projected future cash flows must be discounted to present value so they can be
accurately analyzed.
 Cash flow diagram
Cash Flow Diagram - Loan Transaction
A loan transaction starts with a positive cash flow when the loan is received - and
continuous with negative cash flows for the pay offs.
 Cash flow diagram
Cash Flow Diagram - Investment Transaction
An investment transaction starts with a negative cash flow when the investment is
done - and continuous with positive cash flows when receiving the pay backs.
 Elements of Cost
Overhead Cost
Overhead cost is a crucial element in cost accounting, encompassing all the costs
not directly tied to producing a good or delivering a service.
It is further categorized into direct and indirect overheads based on traceability and
allocability to specific cost centres or products..
Example:
In a furniture manufacturing facility, the electricity cost of running machinery can
be a overhead attributed to the production department.
 Present Value formula
Present Value Formula

The present value of a project’s benefits and costs is calculated with

the present value formula (PV).

PV = FV/(1+r)^n

FV: Future value

r= Rate of return
n= Number of periods
 Cost benefit Ratio
The benefit-cost ratio is used to determine the viability of cash flows
from an asset or project.

The higher the ratio, the more attractive the project’s risk-return
profile.

Poor cash flow forecasting or an incorrect discount rate would lead to

a flawed benefit-cost ratio.
Cost benefit Ratio
Cost-Benefit Ratio= Sum of Present Value Benefits / Sum of Present Value Costs

Here’s how you should interpret the result of the cost-benefit ratio formula.
If the result is less than 1:
The benefit-cost ratio is negative, therefore the project isn’t a good investment as
its expected costs exceed the benefits.
If the result is greater than 1: The cost-benefit ratio is positive, which means the
project will generate financial benefits for the organization and it’s a good
investment. The larger the number, the most benefits it’ll generate.
 Cost benefit Ratio
Advantages of the Benefit-Cost Ratio
Key advantages of the benefit-cost ratio include:
It is a useful starting point in determining a project’s feasibility and whether it can
generate incremental value.
If the inputs are known (cash flows, discount rate), the ratio is relatively easy to
calculate.
The ratio considers the time value of money through the discount rate.
Key limitations of the benefit-cost ratio include:
The reliability of the BCR depends heavily on assumptions. Poor cash flow
forecasting or an incorrect discount rate would lead to a flawed ratio.
The ratio itself does not indicate the project’s size or provide a specific value on
what the asset/project will generate.
 Discounted cash flow
There are three main parts to consider when doing a DCF valuation: the discount
rate, the cash flows, and the number of periods. The formula for discounted cash
flow is:
Where:
CF₁ = Cash flow for the first period
CF₂ = Cash flow for the second period
CFn = Cash flow for “n” period
n = Number of periods
r = Discount rate
 Discounted cash flow
The present value of expected future cash flows is arrived at
by using a projected discount rate.

If the DCF is higher than the current cost of the investment,

the opportunity could result in positive returns and may be
worthwhile.
Discounted cash flow
Advantages
Discounted cash flow analysis can provide investors and companies with an idea of
whether a proposed investment is worthwhile.
It is an analysis that can be applied to a variety of investments and capital projects
where future cash flows can be reasonably estimated.
Its projections can be tweaked to provide different results for various what-if
scenarios. This can help users account for different projections that might be
possible.
Disadvantages
The major limitation of discounted cash flow analysis is that it involves estimates,
not actual figures.
Furthermore, future cash flows rely on a variety of factors, such as market demand,
the status of the economy, technology, competition, and unforeseen threats or
opportunities. These can't be quantified exactly.
 Rate of return method
What is a Rate of Return?
A Rate of Return (ROR) is the gain or loss of an investment over a
certain period of time. In other words, the rate of return is the gain (or
loss) compared to the cost of an initial investment, typically expressed
in the form of a percentage.

When the ROR is positive, it is considered a gain, and when the ROR
is negative, it reflects a loss on the investment.
 Internal Rate of return method
 IRR, or internal rate of return, is a metric used in financial analysis to estimate the
profitability of potential investments. IRR is a discount rate that makes the
net present value (NPV) of all cash flows equal to zero in a
discounted cash flow analysis.
 IRR calculations rely on the same formula as NPV does. It is the annual return
that makes the NPV equal to zero.
 Generally speaking, the higher an internal rate of return, the
more desirable an investment is to undertake.
 IRR is uniform for investments of varying types and, as such, can be used to rank
multiple prospective investments or projects on a relatively even basis. In general,
when comparing investment options with other similar characteristics, the
investment with the highest IRR probably would be considered the best.
Internal Rate of return method
Internal Rate of return method
How to Calculate the IRR
 The manual calculation of the IRR metric involves the following steps:

 Using the formula, one would set NPV equal to zero and solve for the discount
rate, which is the IRR.

 Note that the initial investment is always negative because it represents an

outflow.

 Each subsequent cash flow could be positive or negative, depending on the

estimates of what the project delivers or requires as a capital injection in the
future.
 Net Present Value Method
Net present value (NPV) is the difference between the present value of cash inflows
and the present value of cash outflows over a period of time.

NPV is used in capital budgeting and investment planning to analyze the

profitability of a projected investment or project.

NPV is the result of calculations that find the

current value of a future stream of payments using the proper discount rate.

In general, projects with a positive NPV are worth undertaking, while those with a
negative NPV are not.
 Net Present Value Method
Net present value (NPV) is used to calculate the current value of a future stream of
payments from a company, project, or investment.

To calculate NPV, you need to estimate the timing and amount of future cash flows
and pick a discount rate equal to the minimum acceptable rate of return.

The discount rate may reflect your cost of capital or the returns available on
alternative investments of comparable risk.

If the NPV of a project or investment is positive, it means its rate of return will be
above the discount rate
 Net Present Value formula
If there’s one cash flow from a project that will be paid one year from now, then the
calculation for the NPV of the project is as follows:
 Net Present Value formula
If analyzing a longer-term project with multiple cash flows, then the formula for the
NPV of the project is as follows:
 Net Present Value
Positive NPV vs. Negative NPV
A positive NPV indicates that the projected earnings generated by a
project or investment—discounted for their present value—exceed the
anticipated costs.

It is assumed that an investment with a positive NPV will

be profitable.

An investment with a negative NPV will result in a net loss.

 Net Present Value
Pros
 Considers the time value of money
 Incorporates discounted cash flow using a company’s cost of capital
 Returns a single dollar value that is relatively easy to interpret
 May be easy to calculate when leveraging spreadsheets or financial calculators

Cons
 Relies heavily on inputs, estimates, and long-term projections
 Doesn’t consider project size or return on investment (ROI)
 May be hard to calculate manually, especially for projects with many years of
cash flow
 Is driven by quantitative inputs and does not consider nonfinancial metrics
 Pay back Period
The payback period, or payback method, is a simpler alternative to
NPV.
The payback method calculates how long it will take to recoup an
investment.
One drawback of this method is that it fails to account for the time
value of money. For this reason, payback periods calculated for
longer-term investments have a greater potential for inaccuracy .
 Material balance output method
Material balances are a method of economic planning where material supplies are
accounted for in natural units (as opposed to using monetary accounting) and used
to balance the supply of available inputs with targeted outputs.
Material balancing involves taking a survey of the available inputs and raw
materials in an economy and then using a balance sheet to balance the inputs with
output targets specified by industry to achieve a balance between supply and
demand.
This balance is used to formulate a plan for resource allocation and investment in a
national economy