Project Report/ Business Planning

Once the entrepreneur has formulated a strategy, it is time to formalize a business plan. A
good business plan is essential to exploiting the defined opportunity and determining
the resources required, obtaining those resources and successfully managing the resulting
venture. Proper planning is important for the development of a good business plan.
A Business Plan / Project Report delineate what the business is all about or what it intends to be
over a period of time. A business plan is a written narrative that describes what a new business
plans to accomplish and how it plans to accomplish it. Comprehensive business plan shows if the
business has the potential to make a profit or not. For most new ventures, the business plan is a
dual-purpose document used both inside and outside the firm. Here all aspects of a business
venture are described in a concise manner. To raise funds and to attract business partner, it is
usually imperative to have a well designed written business plan.
Note: Both Project Report and Business Plan appear similar in content. Difference between the two at times lies in the
phraseology, some funding agencies prefers to use the latter term to the other. Here we will use both terms together.

Inside the firm, the plan 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
with the business opportunity the firm is pursuing and how it plans to pursue it.

In fact a large percentage of entrepreneurs do not write a business plan for their venture. But this
doesn’t lessen the importance of writing a business. Running a business without any business
plan is like driving a boat without any pilot. Effective planning is essential, either the Business is
small or big, start-up or well established; it is the first and most important function of business
management. Business plan / Project report gives you the freedom of taking a wise decision
related to that business.
Writing a business plan enforces an entrepreneur to think about all aspects of venture very
minutely. It is a story about the opportunity, a step by step development of new venture and how
it is going to create value for the investors.

Features of a Business Plan/ Project Report:

 It has clear, realistic and specific objective, explained in simple language.

 There are time and financial constrains
 It requires team work. Facts and background of promoters and key persons are disclosed.
 It is an economical activity with well defined beginning and end
 Cost and return of each unit is measurable
 A well planned project includes correct consideration of alternatives
 Identify key issues like:
i. Ways and means through which the product will be manufactured and delivered
to the consumers.
ii. Cost of product or services, marketing / pricing strategies, profit margin etc.
iii. Type of shareholdings
iv. Risk involved in the business and how that can be managed
Patrons of the Business Plan
The primary clientele of the business plan are:
1. A Firm’s Employees. A clearly written business plan, which articulates the vision and
future plans of a firm, is important for both the management team and the rank-and-file
employees of a new venture.
2. Investors and Other External Stakeholders. External stakeholders, such as investors,
potential business partners, potential customers, and key employees who are being
recruited to join a firm, are the second audience for a business plan. A firm must
authenticate the feasibility of its business idea, develop an effective business model, and
have a good understanding of its competitive environment prior to presenting its business
plan to others.

Why Do You Need a Business Plan?

There are many reasons to create a business plan that many budding entrepreneurs don’t know
about. Some of the obvious reasons are as follows.
Many existing entrepreneurs wrongly assume that having a business plan is only necessary when
they are seeking funds. In fact, many legal services, financial advisors and even business
consultants would want to see your business plan. A business plan should have to be considered
as a living document, meaning there is no traditional final draft. As your business needs change
and grow, your business plan needs to be updated.
Before starting your own business, you probably have a very clear idea (at least in your mind) of
the nature of business you will start. And, although your enthusiasm shows whenever you
excitedly explain the concept to anyone who will listen, getting it into reality won’t happen
solely based on your passion or enthusiasm. One of the very first steps any entrepreneur must
take is translating an idea to paper in the form of a business plan. Preparing a business plan can
be a long, time-consuming process, but it is vital to start a business.
Starting a business is a major decision that requires careful planning, including developing
operational and growth strategies. This is true whether doing large or small business; every
company should start with a clear vision and road map for fulfilling that vision. It is also true the
business plan is used to raise money. Even if no outside funding is needed, there must be a plan
for long-term financial stability. The business plan usually projects three – five years into the
future, forcing the entrepreneur to think through the goals for each year and how they will be
met. This process also leads to the development of risk minimization strategies, an import
requirement for long term business success.
Business planning may be difficult, but skipping this step can leave you uninformed about your
firm’s place in the market. The type of information gathered during the planning process can
help you foresee potential risks and develop strategies for dealing with them before they occur.
Many owners return to their business plan even after their firm is up and running to help them
refocus and chart a path for the future.
Putting effort into crafting a precise, professional, and informative business plan in your early
start-up is essential to build a strong foundation for your company’s success. Keeping it up-to-
date with current financial information, strategies and analysis, is crucial to keeping everyone on
point as your business evolves.
Key questions answered in the business plan/project reports are: –
 What is the feasibility of starting a particular business in selected location?
 What are the most important affecting factors for business?
 Which are the high growth market segments in particular business?
 What are the requirements for starting a particular business?
 What will be the budget for the business?
 How to minimize the production cost?
 What are the market forecasts and estimates for particular period?
 What are the major drivers, trends, restrains, threats, and opportunities in the selected
business market?
 Who are the major players in the selected industry?
 How to get loan or raise funds to start a particular business?
All these and many more questions will be answered in these reports with detailed information.
Importance and Purpose of Business Plan and Project Report –
A business plan is important for two major reasons.
First, a business plan is an internal document that helps a new business elaborates its business
model and consolidates its goals. It satisfies the investors about the feasibility of the idea and the
benefits generated from the said business. It is as a guide book of project for the initial
management and the employees of the venture.

Second, a business plan is a selling document for a company. It provides a mechanism for a
young company to present itself to potential investors, suppliers, business partners, and key job
candidates by showing how all the pieces of a new venture fit together to create an organization
capable of meeting its goals and objectives. The following points emphasize the effectiveness
and significance of a good Business Plan or Project Report.

 It clarifies and shows direction to move forward; and allows you to understand what needs
to be done for future success.
 It can be used as a tool to attract investors, reliable vendors, and executive level employees
into the new Business.
 A project report shows the feasibility of the proposed project and the probability of
achieving profit. Whether a project is feasible in different business aspects like financial,
economic, commercial, social, etc. can be ascertained while preparing the report.
 It enables an entrepreneur to foresee his requirements in advance and helps him to take
suitable decisions accordingly.
 It will give clear view to business expenditures and manage budget with full visibility.
 What would be initial cost to get start?
 Determines target market & ways to reach.
 Gives you deep and clear market insights.
 Determines the competition, loopholes and untapped market potential.
  Encourages in-depth research and well-developed presentation of information that banks or
investors require.
 Starts business with careful operational and budgetary planning.
 Encourages professional approach to business planning and presentation.
 Builds the methodical approach to business start-up.
 Helps the business owner with the bird view of business idea and business project
objectively and with critical eye.

A detail Business Plan / Project Report describes Industry Overview, Business

Feasibility, Business Modeling, Business Planning, Financial, Technical aspects of the particular
business idea. Also emphasizes on Market Position, Demand, Market Size, Statistics, Market
dynamics and Trends. The report also describes the infrastructure required, budget required,
pricing and costing of feed, fodder and final products. Project report provides a comprehensive
business analysis and helps you to understand business and help you to raise the funds.

In the preparation of the above given analysis and reports, information in detail is required.
Information about the technical process, plant and machinery, raw materials, manpower
requirement, market and statutory requirements (like pollution control and public safety) , details
of power and water tariff, land/shed/building and selling prices etc. needs to be collected as
prevalent in the market.
Entrepreneur can approach MSMEDIs and state Govt. agencies viz. Directorate of Industries,
SFCs, DICs and market channels for getting information. Micro, Small & Medium Enterprises
Development Institute‘s (formerly Small Industries Service Institutes), Design and Development
Centers like MSME Technology Development Center‘s (formerly PPDC's) /Tool Room's,
Research and Developmental agencies such as NRDC's and Regional Research Laboratories can
help you in selecting the right production process, suitable equipment's etc

Project Classification:
Project classification is a natural outcome to the study of project idea. Different authorities have
classified projects differently. Following are the major classification of projects:
Quantifiable and Non-Quantifiable Projects:
Project for which a plausible quantitative assessment of benefits can be made are Called
‘quantifiable projects.’ Projects concerned with industrial development, power generation,
mineral development fall in this category. On the contrary, non-quantifiable projects are those in
which a plausible quantitative assessment cannot be made .Projects involving health education
and defence are the examples of non-quantifiable projects.
Sectoral Projects:
According to this classification, a project may fall in any one of the following sectors:
 Agriculture and Allied Sector
 Irrigation and Power Sector
 Industry and Mining Sector
 Transport and Communication Sector
 Social Service Sector
 Miscellaneous Sector
The Project classification based on economic sectors is found useful in resource allocation more
especially at macro levels.
Techno-Economic Projects:
a) Project classification based on techno-economic characteristics fall in this category. This type
of classification includes factors intensity-oriented classification, causation-oriented
classification and magnitude-oriented classification. These are discussed as follows:
Factor Intensity-Oriented Classification: Based on factor intensity classification, projects may
be classified as capital intensive. If large investment is made in plant and machinery, the projects
will be termed as ‘capital intensive’. On the contrary, project involving large number of human
resources will be termed as ‘labour intensive’.
Causation-Oriented Classification: Where causation is used as a basis of classification, project
may be classified as demand based or raw material based project. The very existence of demand
for certain goods or service makes the project demand for certain raw materials, skills or other
input makes the project raw material-based.
Magnitude-oriented classification; In case of magnitude-oriented classification based on the
size of investment involved in the projects, the projects are classified into large scale,medium-
scale or small-scale projects
Project classification based on techno-economic characteristics is found useful in facilitating the
process of feasibility appraisal of the project.
Now, let us address to the question; how the entrepreneurs do finally select a project?
The fact remains that in spite of increasing literature on entrepreneurship development,
comparatively little is known about how an entrepreneur identifies and selects a project
comparatively little is known about how an entrepreneur identifies and selects a project. Hence,
it is somewhat difficult to state in any categorical manner as to how an intending entrepreneur
should proceed to select his/her project. As a matter of fact, project selection is not a nebulous
idea; it is a well outlined game plan. There is a definite procedure of selecting a project.
Basically, project selection consists of two main steps
 Project identification
 Project selection

In what follows is their description one by one

Project Identification
If you ask any one intending entrepreneur what project he/she will select the obvious answer
would be “a project having a good market” but the question is how without knowing the product
could one determine the market? Whose market will one find out without knowing the item,
product? Idea generation about a few projects provides a way out of above tangle
Project selection process starts with the generation of a product idea. In order to select the most
promising project the entrepreneur needs to generate a few ideas about the possible projects
he/she can undertake. The project ideas can be discovered from various internal and external
sources these may include
  knowledge of potential customer needs
 watching emerging trends in demands for certain products
 scope for producing substitute product
 going through certain professional magazines catering to specific interests like electronics
computers etc
 success stories of known entrepreneurs or friends or relatives
 making visits to trade fairs and exhibitions displaying new products and services
 meeting with the government agencies
 ideas given by the knowledgeable persons
 knowledge about the government policy concessions and incentives list of items reserved
for exclusive manufacture in small-scale sector and
 a new product introduced by the competitor

All of these sources putting together may give a few ideas about the possible projects to be
examined as the final project this is also described as opportunity scanning and
identification
After going through the above process imagine that you have been able to get five project
ideas as a result of above analysis. These five projects ideas are;
1 nut and bolt manufacturing (industry)
2 lakhani shoes (industry)
3 photocopying unit (service-based industry)
4 electro-type writer servicing (service based industry)
5 polythene bags for textile industry (ancillary industry)
from above list now one projects idea will be finally selected going through the following
selection process
Project Selection
Project selection starts from where project identification ends. After having some project ideas
these are analysed in the light of existing economic conditions the government policy and so on.
A tool generally used for this purpose what is called in the managerial jargon SWOT analysis.
The intending entrepreneur analyses his/her strengths and weakness as well as
opportunities/competitive advantages and threats/challenges offered by each of the project ideas.
On the basis of this analysis the most suitable idea is finally selected to convert it into an
enterprise. The process involved in selecting a project out of some projects is also described as
the “zeroing in process”
Project identification and selection is half done in the process of establishing an enterprise. The
entrepreneur needs to analyse other related aspects also like raw material potential market labour,
capital location forms of ownership etc. it is necessary to mention that each of these aspects has
to be evaluated independently and in relation to each other.
Basic consideration in setting up a new business unit:
The business plan illustrates the basic consideration of new projects. Patrons of business plan
give due importance to these factors before connecting to the business. Given below are
important considerations
a. Objective of the business
b. Management Team and structure
c. Business nature and size
d. Financing the proposition
e. Location and Layout of the unit
f. Manufacturing know how
g. Human Resources
h. Procedural formalities- legal requirements like NOC, registration, certification etc
i. Tax Planning
j. Protecting intellectual property

Guidelines for Writing a Business Plan:

In the business world, time is money, following a standard business report is what senior level
managers, as well as busy businessmen, look for, as it does reflect what they value the most, that
is the utilization of time effectively.
Since the Business plan is the first important written document which develops the image of the
venture, significant care is taken at the time of writing business plan, its content and structure.
The below are the major pointers which needs to be included while preparing a project report.
1. Structure of the 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. Typically,
investors are very busy people and want a plan where they can easily find critical information.
There are many software packages available that employ an interactive, menu-driven approach to
assist in the writing of a business plan. Some of these programs are very helpful. However,
entrepreneurs should avoid creating a boilerplate plan that looks as though it came from a
“canned” source.
2. Content of the Business Plan:

The business plan should give clear and concise information on all the importance aspects of the
proposed venture.
3. Style or Format of the Business Plan:

The appearance of the plan must be carefully thought out. It should look sharp but not give the
impression that a lot of money was spent to produce it. There are three types of business plans.
 a) Executive Summary plan: A summary business plan is 10 to 15 pages and works best for
companies that are very early in their development and are not prepared to write a full plan.

b) Full business plan: A full business plan, which is the assumed focus of our discussion to this
point in the chapter, is typically 25 to 35 pages long.
c) Operational business plan: Some established businesses will write an operational business
plan, which is meant primarily for an internal audience. Commonly running between 40 and 100
pages in length, this plan can obviously feature a great amount of detail.

Outline of the Business Plan:

Every business ought to have a plan, but not every business needs a full formal plan with
carefully crafted summaries and descriptions. A specific firm’s business plan may vary,
depending on the nature of the business and the personalities of the founding entrepreneurs.
Start from the very beginning understanding that your business plan ought to be specific to your
business needs and objectives. If you don’t have a specific immediate need to show a formal
business plan to a banker or investor, then you are probably better off doing just a lean business
plan, for your internal use only.
To make the best impression your business plan should be presented in the standard business
plan format. The Proforma for a business plan/ project report varies from business to business.
Every organization like banks and venture capitalists has their own format for new business
project reports. But the contents or the information reported are more or less same.
Your business plan should present what a banker or venture capitalist expects to see, in the order
they expect to see it in. Following a standard business plan outline will keep you on track, and
save you from botching your best chance at getting your business funded. Start from the very
beginning understanding that your business plan ought to be specific to your business needs and
objectives. Every business ought to have a plan, but not every business needs a full formal plan
with carefully crafted summaries and descriptions.
If you don’t have a specific immediate need to show a formal business plan to a banker or
investor, then you are probably better off doing just a lean business plan, for your internal use
only.

Examine Each Section of the Plan

1. Cover Page and Table of Contents.

The cover page should include the name of the company, its address, its phone number, the date,
and contact information for the lead entrepreneur.
2. Executive Summary.

The executive summary is a short overview of the entire business plan; it provides a busy reader
with everything that needs to be known about the new venture’s distinctive nature. Although the
executive summary appears at the beginning of the business plan, it should be created after the
plan is finished. Only then can an accurate overview of the plan be written.

3. The Business:
The most effective way to introduce the business is to describe the opportunity the entrepreneur
has identified—that is, the problem to solve or the need to be filled—and then describe how the
business plans to address the issue. The objective for short term as well as long term is expressed
in the business plan.
4. Management Team:

As mentioned earlier, one of the most important things investors want to see when reviewing the
viability of a new venture is the strength of its management team. If it doesn’t “pass muster,”
most investors won’t read further. The amount of money the management team has invested in a
new venture is often called “skin in the game.” Investors are wary of investing in a venture if the
founders and the key members of the management team haven’t put some of their own money
(or “skin”) into the venture.

The material in this section should include a brief summary of the qualifications of each key
member of the management team, including his or her relevant employment and professional
experiences, significant accomplishments, and educational background.
5. Company Structure, Ownership, and Intellectual Property:

This section should begin by describing the structure of the new venture, including the reporting
relationships among the top management team members. An organizational chart is prepared that
is a graphic representation of how authority and responsibility are distributed within a company.

6. Industry Analysis:
Industry analysis gives details of market competition, demand and supply of the industry, its
major trends in which the firm intends to compete along with important characteristics of the
industry, such as its size, attractiveness, and profit potential. For example, the health care
industry in the Japan is attractive to many investors because of the aging of the population.

After reading the industry analysis, an investor should have a good grasp on the future
prospects of the industry (or industries) in which the firm intends to compete along with an
understanding of the target market the firm will pursue and how it will defend its position.
7. Marketing Plan:

A complete description of the product or service is provided in the marketing plan. This section
of the business plan typically is carefully scrutinized. Industry Analysis is followed by
marketing plan. The marketing plan provides details about the new firm’s products and services.

In this section the results of the feasibility analysis should be reported, including the results of
the concept tests and the usability tests. It also illustrate the Assessment of four “Ps”
 a) Price
b) Product
c) Place
c) Promotion
Market Feasibility Analysis:
The contents discussed in a market feasibility analysis can be summarized as:

i) Brief discussion on the chief influencers, type of market and players, etc
ii) State reasons for starting business in a particular market
iii) Market description
iv) Target clients
v) Patterns of Market consumption
vi) Advantages of services offered by the new business
vii) Past as well as present supplying/operating location
viii) Production limitations as well as prospects
ix) Details about Exports as well as imports (if applicable)
x) Customer Profile
xi) Demand flexibility
xii) Client behaviors, intentions, purposes, approaches, inclinations, impetus, and needs
xiii) Support network as marketing rules formulated by the government
xiv) Technical as well as government limitation imposed on the product promotion
8. Operations Plan.
Here we deal with the day-to-day operations of the company. The production method of goods or
services is explained in detail. Adopting the suitable business model is an essential part for the
success of any business. The detail description business model as well as its structure is given in
the operation plan.
An increasingly common feature of many business plans for start-ups is a dependence on
outsourcing certain functions to third parties as a way of allowing the start-up to focus on its
distinctive competencies.
9. Financial Plan:

The financial feasibility is very important for the success of the project. Therefore a business
plan must demonstrate the financial viability of the business. A careful reader of the plan will
scrutinize the financial viability of the project before the investment. The financial plan should
begin with an explanation of the funding that will be needed by the business during the next
three to five years along with an explanation of how the funds will be used. Fund flow statement
is described.

After this information a financial projection is illustrated, which are intended to further
demonstrate the financial viability of the business. The financial projections should include three
to five years of prforma income statements, balance sheets, and statements of cash flows and
funs flows.

Essential filling in a Financial Plan are:

a) Investment expenditure and value of the entire projects
b) Investment methods
c) Anticipated productivity
d) Money flows of the project report
e) Investment value evaluation in context of different points of merit
f) Estimated financial ranking
10. Risk Factors.
Although a variety of potential risks may exist, a business should adapt this section to depict its
truly critical risks. One of the most important things that a business plan should convey to its
readers is a sense that the venture’s management understands the critical risks facing the
business.

11. SWOT Analysis

SWOT Analysis is a strategic planning technique that is used to evaluate the strengths,
weaknesses, opportunities, and threats of a project or in a business entity. A detailed SWOT
analysis should be performed.
12. Appendix
Any material that does not easily fit into the body of a business plan should appear in an
appendix.
a) Assessment of Break Even
b) Synopsis of profit and loss
c) Summary of Fund Flow

For MSME a project report is prepared with the help of prescribed guidelines available with
MSMEDI's, DIC and financial institutions. Information about prices of machinery & equipment,
raw material and other various inputs required for setting up an enterprise need to be collected
from the market. A model proforma for preparing the project report is available with MSMEDI's,
DIC's & financial institutions.

Model project profiles are available with the MSMEDIs (formerly Small Industries Service
Institute's) & DIC's for the guidance of entrepreneurs. However, these project profiles have to be
recast in accordance with specific needs of the entrepreneurs and the current prices of inputs.
MSMEDIs, NSIC and State Govt. agencies viz. DICs, SFCs can help you in preparing the Project
Report. You can also prepare the Project Report yourself by collecting detailed information on
various points.

General Practices in writing a Project Report:

Even though, it is not about creative writing; good writing skills are essential in business
information report. It is advisable to keep the language simple as well as lucid in a business
report, especially in the summary and recommendations as there are sections most commonly
read by senior level managers. While designing the effective project report, some of the
important approaches are discussed as follows.

The first approach towards preparing a business report must be in developing as well as assisting
a powerful business strategy. The report should describe the Market Trends, economic trends,
Market players as well as clients. It must also explain – how to perform the chosen approach, the
marketing of its products as well as functional competence.

While creating a new business project report, it is essential to keep in mind the target market.
The report should have realistic plans for unforeseen expenses, price, overturns and issues
neglected. Hence, prediction of future trends rationally is prerequisite of a project report. A
consistent formal style with a logical order along with clear heading would allow readers to
navigate quickly through the manuscript and get them glued to the details.

The project report discusses about the market competitors and their market share. The
entrepreneurs should concentrate on strategies which present his firm differently from his
competitors. To keep itself position intact he should always be aware about his competitor’s
strategies and planning by using various channel of information.

Another major factor to consider while writing project report is data tabulation. Presenting data
lists or tables can help in understanding the report.
As you have worked on the report, nobody else but you would have a better understanding of the
topic than you. There might be few solutions or actions that you would think would be effective
in dealing with the problem, investigated in the report. Include those solutions in the last section.

Gathering resources
Once the entrepreneur has carefully assessed all the required resources and strategies
into a business plan, the next thing is to gather the resources needed for addressing the
opportunity. The acquiring of resources to be as important as opportunities discovered,
because in the absence of the key resources the entrepreneurial process is likely to
result in failure. It is the entrepreneurs’ responsibility to attract resources that are
sufficiently strategic, valuable or rare. These resources are inputs for the organization. It
includes raw materials, technology, capital and most importantly human resource. The
human resources acquired by the owner are the building block for the company.
Developing an efficient and loyal team is basic requirement for the future growth of the
company.
Network Analysis:
Network analysis is the general name given to certain specific techniques which can be used for
the planning, management and control of projects. . They usually portray the events and
activities that are planned for the project and show their sequential relationships and
interdependencies. An activity refers to some action which is time consuming effort necessary to
complete a specific event. Each activity has a point of time when it begins and a point of time
when it ends.
Networks model the interrelated flows of work that must be accomplished to complete a project.
They usually portray the events and activities that are planned for the project and show their
sequential relationships and interdependencies.

It is an important tool for effective implementation of the project. Networks have inherent
properties that are quite similar to those of most systems; that is, they are holistic and inclusive
and their elements are interdependent and interconnect at one or more points. In doing a network
analysis, you are taking a systems approach to producing a fully elaborated project plan that can
subsequently be employed with confidence as a managerial tool.

Therefore it is concluded that Network analysis can be a valuable technique for managers
confronted with responsibilities for planning and controlling their projects.
The benefits are many and will far be more important than costs associated with networking,
providing that one is judicious in deciding upon the scope of effort appropriate for a particular
project. When engaging in network planning, it is important that advantage be taken of less
costly methods for generating, analyzing, monitoring, and updating plans

Objectives of Network Analysis:

Network Analysis helps to achieve following objectives:
i) Helpful in planning, scheduling and controlling the activities of the project.
ii) It intends to create interrelationship and interdependence of various activites of the
project. It helps in integrating project planning.
iii) It can help to minimize cost by avoiding delays. Any delays in execution of any
activity will incur cost.
iv) It enables management to minimize the total maintenance time. If the cost of
overheads is high, there arises a need to minimize the maintenance time, which is
possible with the help of network analysis.
v) Network Analysis develops a disciplined and systematic approach in planning
scheduling etc. It helps project manager to avoid delays and interruption in
production and exercise effective control over complex projects
vi) A provision for effective utilization of resources can be made with network analysis.
The entrepreneur can fix time and cost for effective utilization of resources and
completion of project on time.
vii) It enables the delegation of responsibilities at different supervisory level. Supervisors
of each activity or division are made aware of time schedule and activities of other
supervisors. This facilitates proper coordination among floor managers.

Stages of Network Analysis

There are four principal stages in network analysis. They are briefly described as:
1. Network Generation
This section offers one step-by-step approach to developing a network plan. This stage begins
with specifications of the project's goal or objective. It moves from the conceptualization of what
must be done to the precise specification of events and activities that are to be carried out in
achieving the goal or objective. The activities are drawn to indicate what follows what. Time
estimated for each activity is evaluated and noted down on the network. The network produced
during this stage represents a graphic model of the project and incorporates time (and sometimes
cost) estimates.

In this stage the manager responsible for the project should establish a set of working
assumptions, specifically, rough estimates of the anticipated life of the project and-the amount of
funding available for it. There is a danger that these rough estimates will become unrealistic
constraints or self-fulfilling prophecies.
The manager establishes various areas of effort for which events and activities will be developed.
Project manager identify those individuals who will be responsible for making required inputs to
events and activities

2. Network Evaluation
Once an initial network plan for a project is completed, it must be assessed by a manager to
determine its soundness from the standpoint of its underlying logic. Critical activities are
identified for efficient allocation of the resources in order to complete the project earlier if
necessary.
After proper evaluation the project manager is in a position to assess the following questions -
Does expected completion date of the project satisfy needs? Or the project manager has to
"adjust" the plan by trading-off project performance or cost variables to attain a different
completion time? Similarly, a manager may wish to shift the point of project completion
backward in time to achieve cost savings or higher performance specifications.

A second point for analysis is to ascertain whether any particular subsystems within the plan
appear out of line in terms of their time and cost estimates.
Next, the project manager would be wise to scrutinize carefully the critical path in the network.
Any delays along this path will delay the project's completion. Manager will find out if there are
reasonable ways to shorten the length (time) of the path.

Also he has to find out if there are certain activities and events along the path particularly
worrisome in terms of uncertainties involved in their time or cost estimates. The manager can
develop a "control list" for these events and review it weekly to assure that the activities have in
fact been initiated on time.

3. Network Monitoring
Once adopted, the network plan becomes a valuable managerial tool for the life of the project. It
can be employed to determine the extent to which the project is preceding as planned and
whether managerial interventions are required. Where such interventions are necessary, the
network provides useful data for weighing possible alternative managerial actions.

In monitoring the status of the project, one of the questions the manager will be addressing is
whether the work is progressing according to plan. Second question of prime concern to the
managers of projects is how their rate of expenditure compares to their planned expenditure rate?
It is equally disconcerting to managers to be ‘under expending’ as it is to be ‘over expending’ in
that it is likely that the ‘under expending’ project is also falling behind schedule in its work

4. Network Modification
Once a network has been thoroughly evaluated and revised and you have entered the monitoring
of progress phase, questions arise as to how often the network should be updated and in what
manner. Monitoring may indicate that the network plan will have to be altered to maintain
necessary managerial control. While modifying project one should always take into the
consideration that there is a definite hazard that you might expend more of the project's resources
and the manager's time in modification efforts than are warranted!

Advantages of Network Planning

Network analysis is a vital technique in Project Management. It enables us to take a systematic
quantitative structured approach to the problem of managing a project through to successful
completion. Moreover, it has a graphical representation which means it can be understood and
used by those with a less technical background.

Outlined below are some of the important advantages of Network Planning:

1. Networking has an underlying logic that forces disciplined thinking in planning a project; if
followed, that logic will increase managers' confidence that they are aware of the important
elements of their programs.
2. Networking serves as an analytic aid to managers, helping them to recognize and understand
the complex relationships that are present among different parts of their projects. Networking
elicits essential facts from the outset ; that is, what needs to be done, by whom, how long it will
take, what it will cost, and what needs to be closely coordinated and monitored .

3. Networks provide a basis for systematic evaluation of project management decisions. For
example, is the planned approach to the project reasonable in terms of anticipated time and cost?
Are there activities envisioned for subsystem efforts that can be combined or eliminated? What
will be the effect of a proposed change or delay in one subsystem on other subsystems and the
project as a whole?

4. Network generation efforts and the resultant network plans can be major aids in improving
communications on projects. Communication that goes on about the project during the
generation of a network contributes greatly to the development of an effective project team. The
network itself represents a visual aid to communication about the project-what it is to
accomplish, how, and its present status. The network can be usefully employed in orienting new
project team members, reporting progress and/or problems, public relations efforts, and so forth.
5. Networks provide managers with a useful tool for carrying out their responsibilities for
controlling projects and taking actions to ensure, to the extent possible, that projects are
proceeding according to plan . Responsibility for specific events and activities is fixed in
advance and there is less chance of things "falling through the cracks."
6. Finally, network plans that are carefully monitored provide timely warnings of impending
problems and help managers to focus their attention where it will do the most good.

Techniques of Network Analysis

Contemporary network approaches to managerial planning and control have combined several
evolving managerial technologies.

Two different techniques for network analysis were developed independently in the late 1950's -
these were:

 PERT (for Program Evaluation and Review Technique); and

 CPM (for Critical Path Management).

The ‘Program Evaluation and Review Technique (PERT)’ was developed in 1957 by the Navy's
Special Projects Office (with the assistance of Booz-Allen-Hamilton) to aid in managing the
development of the Polaris weapon system. This was a project to build a strategic weapons
system, namely the first submarine launched intercontinental ballistic missile, at the time of the
Cold War between the USA and Russia. Military doctrine at that time emphasised 'MAD -
mutually assured destruction', namely if the other side struck first then sufficient nuclear
weapons would remain to obliterate their homeland. That way peace was preserved.

By the late 1950s the USA believed (or more importantly believed that the Russians believed)
that American land based missiles and nuclear bombers were vulnerable to a first strike. Hence
there was a strategic emphasis on completing the Polaris project as quickly as possible, cost was
not an issue. However no one had ever built a submarine launched intercontinental ballistic
missile before, so dealing with uncertainty was a key issue.

PERT has the ability to cope with uncertain activity completion times (e.g. for a particular
activity the most likely completion time is 4 weeks but it could be any time between 3 weeks and
8 weeks).

Primarily PERT is a scheduling technique. It shows any job or project as a set of processes of
operations called activities which must take place in a certain sequences. PERT originally
focused only upon time variables, but it was not long before it became possible to incorporate
cost variables as well. PERT involves diagrammatic representation (known as Network Drawing)
of the activities and events involved in a long term project. Network drawing techniques are
mostly used in project management. The project manager has to look after all those activities and
their interrelationship. Manager also has to take decision related with the estimation and
requirement of resources and time. He also has to take decisions related with the estimation and
requirement of resources and time. In other words PERT helps project manager in planning,
scheduling, monitoring, evaluating and controlling the projects. By using this technique a project
manager can tell you –

a) The expected time to complete the project

b) Effect of any delay
c) How to use additional resources, if the project has to be completed before the scheduled
time frame.
d) Probability of completing the project in time

Sophisticated computer programs became essential for full-blown applications of these planning
technologies to handle the quantity of calculations required by periodic updating of network
plans or for simulation analysis.

Some federal agencies such as the Navy Department moved toward policies of uniformly
requiring the use of PERT on their principal projects and toward establishing standard report
formats, computer programs, and so forth.
Importance of PERT:

 PERT determines the expected duration of activities & the project

 Incorporates risk analysis in project network
 It determines critical activities of the project, which helps in efficient allocation of
resources to complete the project.
 PERT helps in optimum allocation of scarce resources

Critical Path Method (CPM):

The Critical Path Method (CPM) was developed as a result of a joint effort by the DuPont
Company and Remington Rand Univac in 1956. As these were commercial companies cost was
an issue, unlike the Polaris project mentioned above. In CPM the emphasis is on the trade-off
between the cost of the project and its overall completion time (e.g. for certain activities it may
be possible to decrease their completion times by spending more money - how does this affect
the overall completion time of the project?). CPM differentiates between planning and
scheduling.

Planning refers to the determination of the activities that must be accomplished and the order in
which they should be performed to achieve the objective of the project. On the other hand
scheduling refers to the introduction of the time into the plan thereby creating a time schedule for
the various activities.

CPM is a deterministic model. It assumes both time to complete the activity as well as cost of
doing activity, which is known with certainity. CPM gives importance to critical path and critical
activities. The scheduling of activities is done in such a manner that critical activities do not
cause any delay to projects. Instead of it activities are crashed (reduced) by inducing additional
resources, so as to complete the project before normal time.

The main difference between PERT and CPM is that, PERT is a probabilistic in nature whereas
CPM is deterministic in nature.

Main Feature of CPM

a) It determines the critical or bottlenecks activities and the critical path on which the
project duration depends.
b) It gives the most economical schedule for a fixed period.
c) Determines the pattern of allocation of available limited resources.

Importance of CPM:

 It allows comprehensive view of the entire project. The sequential and concurrent
relationship of the activities makes the time schedule very effective.
 Identifying the critical activities keeps the entrepreneurs alert. Alternate plan may be
prepared if they are needed.
 It facilitates the use of selective management principles in project management. Breaking
down of the projects into smaller components permits better and closer control.
 Plan schedule derived from CPM enables effective practicing of delegation.

Project appraisal
Project appraisal is the process of assessing, in a structured way, the case for proceeding with a
project or proposal, or the project's viability. It often involves comparing various options, using
economic appraisal or some other decision analysis technique.
The entire project should be objectively appraised for the same feasibility study should be taken
in its principal dimensions, technical, economic, financial, social and so far to establish the
justification of the project or project appraisal is the process of judging whether the project is
profitable or not to client or it is a process of detailed examination of several aspects of a given
project before recommending of some projects.
Process of appraisal
 Initial Assessments
 Define problem and long-list
 Consult and short-list
 Evaluate alternatives
 Compare and select Project appraisal.
Types of appraisal
 Technical appraisal
  Project appraisal
 Legal appraisal
 Environment appraisal
 Commercial and marketing appraisal
 Financial/economic appraisal
 organizational or management appraisal
 Cost-benefit analysis
 Economic appraisal

Out of the above few important appraisals are discussed below

1. Technical Appraisal:
The status of the technical know-how and design as envisaged in the project should be fully
assessed. The technology and design should be one already tested and established. The know-
how already available within the country and currently in use should be explored and compared
with that envisaged in the project. It is desirable to find the ‘state-of-the-art’ technology relevant
to the project and weigh and measure the same vis-a-vis the technology proposed in the project
appraised.
The aim is to have the best possible know-how (most suitable with the economic environment)
already established with higher grade quality and productivity, if possible, from the relevant
technical collaborator.
While carrying out the technical appraisal, it is necessary to appraise the terms for the know-how
as agreed with the collaborator as such terms have a direct bearing on the cost and financial
impact on the operation of the project. The financial institution providing the term loan for the
project also appraises the terms before agreeing to finance the project.
2. Economic/ Financial Appraisal:
The economic appraisal of the project covers the following areas:
To ensure:
(i) The project’s compatibility with the macroeconomic environment in the relevant industry and
fitting in with the government’s concerned policy.
(ii) That the current situation in the industry involved permits such a project, mainly emphasising
the appraisal in respect of the following points:
a. Existence of a growing market with increasing gap between the demand and the supply of
such product/service as envisaged in the project;
b. When the product is ‘intermediate.’ in nature and the customer is in particular
industry/organisation, which is a stable one;
c. There is reasonable amount of market research/study on the product and the project is having a
back-up with reliable support study and report;
d. The possible market share that can be arrested with the implementation of the project as
revealed by the market report.
(iii) An overall appraisal of the competitors fielding in the area with their strength and
weaknesses.
(iv) Availability of the resources required for the project. The alternatives for employment of
such resources cannot compete with the estimated project profitability. In this regard, the various
techniques for financial appraisal of the project, discussed later, are helpful.
(v) Facilities to the extent available, including monetary assistance for such project

Financial viability can be judged on the following parameters:

 Total estimated cost of the project

 Financing of the project in terms of its capital structure, debt to equity ratio and
promoter's share of total cost
 Existing investment by the promoter in any other business
 Projected cash flow and profitability

The financial viability of a project should provide the information related to:

 Full details of the assets to be financed and how liquid those assets are.
 Rate of conversion to cash-liquidity (i.e., how easily the various assets can be converted
to cash).
 Project's funding potential and repayment terms.
 Sensitivity in the repayments capability to the mild slowing of sales, acute
reduction/slowing of sales, small increase in cost, large increase in cost, adverse
economic conditions etc.

3. Organisational and Managerial Appraisal:

A project report contains an organisation structure drawn along with the suggested number of
employees and their levels and grades. These organisations recommended in the reports are,
however, impersonal and primarily deal with the functional relationship within the project team,
taking care of the work-load involved in the respective areas.
The organisational and managerial appraisal is carried out recognising that:
(i) The complexities in project management require a well-knit project organisation structure,
which again depend upon the volume and nature of the project as well as the culture and motive
of the project owner. For example, in case of an owner-managed small project, the structure is
simple and the appraisal is limited to the assurance that the owner is assisted whole-time/part-
time by other functionaries.
In case of a medium sized project the owner still holds the rein for the project management but
prefers to carry out the implementation with the help of a project manager. The situation is
different for complex and large projects.
(ii) Experience suggests that the project organisation should have an overall in-charge as project
manager with the quality of strong leadership and effective communicating ability besides the
required theoretical and technical skill.
(iii) The organisation structure should be interlaced so that the project work is carried out in a
unified way.
(iv) The managerial personnel heading the different functions should be duly skilled in their
respective functions to carry out the project implementation and operation. The appraisal is to
ensure that the key managerial personnel have been fixed before the start of the work; it is also
desirable to appraise the backgrounds of such personnel.
As a matter of practice, the financial institutions in the process of project appraisal also look out
for the background of the key managerial personnel in the relevant project management.
4. Commercial/ Market Appraisal:
Appraisal is made about the marketability of the product including the volume considered in the
project. The project should be supported by market research/statistics from competent and
reliable organisation or professional consultants like India Market Research Bureau.
The points for consideration are:
(i) The size of the market and its growth; the gap between the demand and supply;
(ii) Information about major competitors, their capacities installed, their market share, their
strength and weaknesses, if any;
(iii) The international market and the possibility of export;
(iv) Whether the product is an import substitute having the prospect of saving valuable foreign
exchange.
Project Implementation:

While establishing the unit, an entrepreneur is required to pay attention to various aspects like
size, location and layout as these affect the efficiency of the operations. Such factors should
preferably be considerably the entrepreneur at the project planning stage and need to be taken
care of at the project implementation stage.

Size – The size of the unit refers to the production or installed capacity. The size is
important as it determines the use of technology and in most cases the layout of the
production process. The size of the plant should be fixed with due consideration to economy
of scale. Size also encompass factors like land, building, etc. size of land should be such to
take care of storage of raw materials, finished goods as well as construction of factory for
processing / manufacturing. Its size should be such so as to take care of present and future
requirements of expansion. This would also apply to the building which may be constructed
or rented.

Location – Proper location of an enterprise is crucial for its success. Raw material, skilled
labour, and market are the factors that help production in a manufacturing unit. Location of
manufacturing establishments would depend upon their type. Resource based units like
 agro-industry; nearness to the source of raw material is a definite advantage. Similarly for
demand based industries location near the market is advisable and for skill based industry
like gold embroidery location where such skilled workers are available is suitable. A unit to
be located in a residential or commercial area has to take note of local bye-laws and should
not be a nuisance to the neighborhood.

It is difficult to set down rules, whereby, the problem of location can be programmed but
there is a number of factors which should be considered. It is worth differentiation between
the problems of location and of site, the location is the general area, and the site is the place
chosen within the location. The decision on selecting, thus probably proceeds in two stages
– in the first stage the general area is chosen and then a detailed survey of the area is carried
out to find possible sites.

Plant layout
Plant Layout is the physical arrangement of equipment and facilities within a Plant. Optimizing
the Layout of a Plant can improve productivity, safety and quality of Products. Un-necessary
efforts of materials handling can be avoided when the Plant Layout is optimized.
Plant layout techniques apply to the case where several physical means have to be located in a
certain area, either industrial processes or services. The basic objective is to ensure a smooth
flow of work, material, people and information.
There are probably two levels at which layouts are required. In one, the various departments
have to be sited, and in other the items of equipment within a department need to be located.
Criteria for a good layout:
 Maximum flexibility: A good layout will be one which can be rapidly modified to meet
changing circumstances.
 Maximum co-ordination: Entry into, and disposal from, any department or functional area
should be in such a manner that it is must convenient to the issuing or receiving departments.
Layout requires to be considered as a whole and not partially.
 Maximum use of volume: Facilities should be considered as cubic devices and maximum use
made of the volume available. This principle is particularly useful in stores, where goods can
be stacked at considerable heights without inconvenience, especially if modern lifting devices
are used. In offices, racking can be installed to minimize use of floor space.
 Maximum visibility: All the people and materials should be readily observable at all the
time; there should be no ‘hidden places’ into which goods or information can get mislaid.
 Maximum accessibility: All servicing and maintenance points should be readily accessible.
For example, equipment should not be placed against a wall in such a manner that necessary
maintenance cannot easily be carried out.
 Minimum distance: All movements should be both necessary and direct. Handling work
adds to cost but does not increase value; consequently any unnecessary or indirect movements
should be avoided.
 Minimum handling: The best handling of material and information is no handling, but where
it is unavoidable it should be reduced to a minimum by the use of whatever devices are most
appropriate.
 Minimum discomfort: poor lighting, excessive sunlight, heat, noise, vibration and smells
should be minimized and if possible counteracted.
 Inherent safety
 Maximum security
 Efficient process flow

Inputs to the Layout Decision: Given below is the list of important inputs that are required in
taking layout decision.
 Specification of objectives of the system in terms of output and flexibility.
 Estimation of product or service demand on the system.
 Processing requirements in terms of number of operations and amount of flow between
departments and work centers.
 Space requirements for the elements in the layout.
 Space availability within the facility itself.

Advantages of a good layout

 The overall process time and cost will be minimized by reducing unnecessary handling and
movement.
 Supervision and control will be simplified by the elimination of ‘hidden corners’
 Changes in the programmers will be most readily accommodated.
 Total output from a given facility will be as high as possible by making the maximum
effective use of available space and resources.
 A feeling of unity among employees will be encouraged by avoiding unnecessary segregation.
 Quality of the products or service will be sustained by safer and more effective methods of
operation.

Product design – The product or the service offered is the backbone of any enterprise.
Therefore, what and how to produce is the first step in an operational system. The image of
an enterprise and its profit making capacity are influenced by the product design. Product
design once decided, continues for a long time, hence you should keep in mind the probable
changes in environment, technology and consumer tastes for the next 5 years at least. It is
said that more the time one spends on product design, better are one’s chances of success.
The following considerations apply in designing a new product:

1. Standardisation.
2. Reliability.
3. Maintainability.
4. After sales service.
5. Reproducibility.
6. Sustainability.
7. Simplification.
8. Quality of product.
9. Cost of product.
10. Product value.
11. Customer friendly features.
You can add to this list depending upon the nature of your product.