Unit 4
Unit 4
Unit 4
Project Management
Unit 4 Topics
Developing a business plan/project report
McGraw Hill
• Solution:
• First Pair of Jeans
Ideas or opportunities
■ There are many different ways a firm can innovate; it helps define the innovation space according
to what, who, how, and where aspects
⚪ Change what the firm offers, in line with a traditional view of new product or service innovation
■ IPOD
⚪ Changing who the customer is represents another route that involves innovations related to customers,
experiences, and value capture
■ Google, IKEA, Home depot DIY
⚪ Changing how you sell to customers pertains to the processes, organizations, and supply chains that a
firm uses
■ Dell, Progressive insurance
⚪ Changing where to sell to customers comprises presence, networking, and brand innovations
■ Starbuck at airport, Otis elevator
6
Innovation Radar
Changing Brand W
where to sell
Offering HA Changing
E Leverage Develop what the firm
to customers R the brand T
E new offers
H into new products or Platform
W Networking markets Use
Interconnections services
interchangeable
as a strength
designs
Presence Solutions
Change where Provide a total
products are sold solution
Experience
Supply chain Change Changing
Change supply customer
Changing who the
how to sell to
chain Processes Customer interactions customer is
HO
H
Change Change
OW
customers
W
operating customers to
processes target
7
Innovation Radar Exercise: Take a Few
Minutes and Develop Innovation Ideas
1. Offering: Develop new products or new services (IPOD)
2. Platform: Design modular platforms and strategic control points
(Nissan)
3. Solution: Solve end-to-end customer problems (John Deere)
4. Customer: Discover unmet customer needs or underserved
segments (DIY)
5. Experience: Rethink how customers interface with you (IKEA)
6. Value Capture: Redefine how you get paid (Google)
7. Processes: Innovate in your core operating processes
(Progressive)
8. Organization: Change form, function or scope (IBM, Arrow)
9. Supply chain: Rethink sources (Dell)
10. Presence: Innovative points of presences (Starbucks at airport)
11. Networking: Integrated offering, leverage others (Otis elevator)
12. Brand: Leverage the brand into new domains (Virgin)
8
8
Projects – An overview
o Projects are part of
o Every person
o Building a house
o Marriage of son/daughter
o Every organisation
o Setting up a new factory, modernisation/expansion
o New product development
o Every nation
o Building of highways, metros, railways, dams, thermal power
plants
o Hydroelectric plants, airports…..
o Project Management
o Separate branch of study related to management
of projects
Cost Quality
• Integration
• Trade – Off’s
12
INTRODUCTION
13
Project – Stages/Phases
o Project Planning
o Investment strategy; generation & preliminary screening of
project ideas
o Project Analysis
o Feasibility studies
o Project Selection
o Discounting and non-discounting techniques (NPV; ARR; ..)
o Project Financing
o Equity and debt
o Project Implementation
o Project & Engg designs; Negotiation & Contracting; Construction;
training; commissioning
o Project Review (Controlling & monitoring)
o Compare actual with projected performance
Project –
Discounting and non-discounting
Project Selection techniques (NPV; ARR; ..)
o Assesses
o Whether the project is worthwhile to justify a
feasibility study
o Identifying critical factors for viability of the project,
which needs in-depth investigation
o Involves
o Generation of project ideas
o Preliminary Screening
o Steps
o Situational analysis and specification of objectives
o Collection of secondary information
o Conduct market survey
o Characterisation of the market
o Demand forecasting
o Market planning
o Methods
Demand o Qualitative Methods
o Jury of Executive ; Delphi Technique
forecasting o Time Series Projection methods
o Trend Projection; Exponential
Smoothing; Moving average
methods
• But what will be the costs and/or the benefits that a society may have to
bear and/or get from the proposed project are not considered here.
For example:
• Suppose, a manufacturer produces cigarettes and sell it Rs.40 a packet, and
another manufacturer produces soaps and sell it Rs.20 a bar.
▫ Does the price of soap take note of the benefits from the use of soap, e.g.,
reduced risk of spreading diseases?
• So, to reflect the real value of a project to society, we must consider the impact
of the project on society.
Impact
Positive Negative
(Social Benefit) (Social Cost)
Thus ,when we evaluate a project from the view point of the society (or
economy) as a whole, it is called Social Cost Benefit Analysis (SCBA) Analysis.
Significances of SCBA
• CBA is unable to reflect social values. Hence SCBA has been emerged with some interesting
significances. These significances also make the SCBA different from the CBA.
● Market Imperfections
● Market prices, the basis for CBA, do not reflect the social values under imperfect market competition.
● Externalities
● A project may have beneficial or harmful external effects that are considered in SCBA, not in CBA
● Taxes & Subsidies
● From the social point of view, taxes & subsidies are nothing but transfer payments. But in CBA, taxes
& subsidies are treated as monetary costs and benefits respectively.
● Concern for Savings
● In SCBA, the division between savings & consumption is relevant wherein higher valuation is placed
on savings. But in CBA such division is irrelevant.
● Concern for Redistribution
● In SCBA, the distribution of benefits is very much concerning issue where commercial private firm
does not bother about it.
● Merit Wants
● Merit wants are important from the social point of view and therefore, SCBA considers these wants.
Objectives of SCBA
• A. UNIDO Approach:
o This approach is mainly based on the publication of UNIDO
(United Nation Industrial Development Organization)
• named Guide to Practical Project Appraisal in 1978.
• B. L-M Approach:
o I.M.D Little & J.A.Mirlees have developed this approach for
• analysis of Social Cost-Benefit in Manual of Industrial Project Analysis in Developing Countries
and Project Appraisal & Planning for Developing Countries.
• For instance, if the pdn cost of 1 ton of a fertiliser is Rs.2000,though it is supplied to the
farmers at a subsidised price of Rs. 1500
• There are some goods (merit goods), social value of which exceed the
economic value (e.g. oil, creation of employment etc.) and also there are
some goods (demerits goods), social value of which is less than their
economic value (e.g., cigarette, alcohol, high-grade cosmetics etc.)
Scoping
• The project’s potential impacts, zone of impacts, mitigation
possibilities and need for monitoring.
Appraisal
• Risk assessment, mitigation, assessment of alternatives
Project – Stages/Phases
o Project Planning
o Investment strategy; generation & preliminary screening of
project ideas
o Project Analysis
o Feasibility studies
o Project Selection
o Discounting and non-discounting techniques (NPV; ARR; ..)
o Project Financing
o Equity and debt
o Project Implementation
o Project & Engg designs; Negotiation & Contracting; Construction;
training; commissioning
o Project Review (Controlling & monitoring)
o Compare actual with projected performance
o Non-discounting Technique
o Pay back period
o Accounting Rate of Return (ARR)
Common Errors in Project Formulation
• The entrepreneurs often make errors while formulating project report. The common errors are as
follows:
49
10 Reasons Why You Need a Strong Business Plan
1. To attract investors.
2. To see if your business ideas will work.
3. To outline each area of the business.
4. To set up milestones.
5. To learn about the market.
6. To secure additional funding or loans.
7. To determine your financial needs.
8. To attract top-level people.
9. To monitor your business.
10. To devise contingency plans. 50
How Detailed Should Your Plan Be?
▪ Business plans differ widely in their length, appearance, content, and the emphasis
placed on different aspects of the business.
▪ Depending on your business and your intended use, you may need a very different
type of Business Plan:
– Mini-plan: Less emphasis on critical details. Used to test your assumptions, concept, and
measure the interest of potential investors.
– Working Plan: Almost total emphasis on details. Used continuously to review business operations
and progress.
– Presentation Plan: Emphasis on marketability of the business concept. Used to give information
about the business to bankers, venture capitalists, and other external resources.
51
Assembling a Business Plan
52
Seven Common Parts of a Good Business Plan
▪ The Executive Summary of a Business Plan is a 3-5 page introduction to your Business
▪
Plan.
The Executive Summary is critical, because many individuals (including venture
capitalists) only read the summary.
55
Part 3: Market Analysis
▪ AyourMarket Analysis defines the target market so that you can position
business to get its share of sales.
– Explains (from an internal perspective) the impacts and results of past marketing
decisions.
– Explains the external market in which the business is competing.
– Sets goals to direct future marketing efforts.
– Sets clear, realistic, and measurable targets.
– Includes deadlines for meeting those targets.
– Provides a budget for all marketing activities.
– Specifies accountability and measures for all activities.
58
Part 6: Financial Plan (Slide 1 of 2)
▪ The Financial Plan translates your company's goals into specific financial targets.
59
Part 6: Financial Plan (Slide 2 of 2)
▪ The Financial Plan is the most essential part of your Business Plan. It
– Important Assumptions
– Key Financial Indicators
– Break-even Analysis
– Projected Profit and Loss
– Projected Cash Flow
– Projected Balance Sheet
– Business Ratios
– Long-term Plan
60
Different Financial Planning
Options (Slide 1 of 2)
▪ month
Short-term Forecast: Projects either the current year or a rolling 12-
period by month. This type of forecast should be updated at
least monthly and become the main planning and monitoring vehicle.
▪ budget
Budget: Translates goals into detailed actions and interim targets. A
should provide details, such as specific staffing plans and line-
item expenditures.
– The size of a company may determine whether the same model used to
prepare the 12-month forecast can be appropriate for budgeting.
– In any case, unlike the 12-month forecast, a budget should generally be frozen
at the time they are approved.
61
Different Financial Planning Options (Slide 2 of 2)
▪ Strategic Forecast: Incorporates the strategic goals of the company into the
projections. For startup companies, the initial Business Plan should include a month-
by-month projection for the first year, followed by annual projections for a
minimum of three years.
▪ Cash Forecast: Breaks down the budget and 12-month forecast into more detail.
The focus of these forecasts is on cash flow, rather than accounting profit, and
periods may be as short as a week in order to capture fluctuations.
62
Part 7: Operating plan
64
Business plan assignment
▪ Group Project
▪ Contents
1. Executive Summary
2. Business Concept
3. Market Analysis
4. Management Team
5. Marketing Plan
6. Financial Plan
7. Operations and Management Plan
Forms of Business Organisation
• Sole Proprietorship
• Partnership
• Corporation
Source : Ross., Westerfield and Jordan. (2008). Fundamentals of Corporate Finance, New Delhi : Tata McGraw-Hill
1.7
Sole Proprietorship
• Advantages • Disadvantages
– Easiest to start – Unlimited liability
– Least regulated – Limited to life of owner
– Single owner keeps all – Equity capital limited to
the profits owner’s personal wealth
– Taxed once as personal – Difficult to sell
income ownership interest
1.8
Partnership
• Advantages • Disadvantages
– Two or more owners – Unlimited liability
– More capital available – Partnership dissolves
– Relatively easy to start when one partner dies
– Income taxed once as or wishes to sell
personal income – Difficult to transfer
ownership
Corporation
• A business created as a distinct legal entity
composed of one or more individuals or entities.
• Borrow money and own property
• Can sue or be sued
• Can enter into contracts
• Large and medium sized business are organised as
corporations.
• Reliance, Infosys, ITC, ABB, Unilever, Sony
Source : Ross., Westerfield and Jordan. (2008). Fundamentals of Corporate Finance, New Delhi : Tata McGraw-Hill, pp.4-5
Brealey, Myers, Allen and Mohanty. (2007). Principles of Corporate Finance, 8th ed., new Delhi : Tata McGraw-Hill, pp. 5-6
1.9
Corporation
• Advantages • Disadvantages
– Limited liability – Separation of
– Unlimited life ownership and
– Separation of management
ownership and – Double taxation
management (Corporations pay tax on
their profits, and in addition
– Transfer of ownership is pay dividend distribution tax
easy on any dividend they pay to
– Easier to raise capital the shareholders)
Classification of Entities
Minimum Members 2 7 1 2
Minimum Directors/Partners 2 3 1 2
71
Advantages
Continuity of existence Liquidity to shareholders. Suitable for small business Limited Liability of the
units as it offers Corporate partners.
form of sole proprietorship.
Many compliance related No restrictions on number of Limited liability of the Minimal compliances
exemptions available members. shareholders required.
72
Corporate form of Organisations – Across the
world
Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.
Alternative Proxies: