UNIT III

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Unit I

Entrepreneurship: Concept and Definitions; Entrepreneurship and Economic Development;

Classification and Types of Entrepreneurs; Entrepreneurial Competencies; Factor Affecting

Entrepreneurial Growth – Economic, Non-Economic Factors; EDP Programmes; Entrepreneurial

Training; Traits/Qualities of an Entrepreneurs; Entrepreneur; Manager Vs. Entrepreneur.

(14 Hours)

Unit II

Opportunity / Identification and Product Selection: Entrepreneurial Opportunity Search and

Identification; Criteria to Select a Product; Conducting Feasibility Studies; Project Finalization; Sources

of Information. (14 Hours)

Unit III

Small Enterprises and Enterprise Launching Formalities : Definition of Small Scale; Rationale;

Objective; Scope; Role of SME in Economic Development of India; SME; Registration; NOC from

Pollution Board; Machinery and Equipment Selection; Project Report Preparation; Specimen of Project

Report; Project Planning and Scheduling using Networking Techniques of PERT / CPM; Methods of

Project Appraisal.

(14 Hours)

Unit IV

Role of Support Institutions and Management of Small Business : Director of Industries; DIC;

SIDO; SIDBI; Small Industries Development Corporation (SIDC); SISI; NSIC; NISBUED; State

Financial Corporation SFC; Marketing Management; Production Management; Finance Management;

Human Resource Management; Export Marketing; Case Studies-At least 4 (four) in whole course.

(14 Hours)

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Sometimes called a small business, a small-scale enterprise is

a business that employs a small number of workers and does

not have a high volume of sales.

Such enterprises are generally privately owned and operated

sole proprietorships, corporations or partnerships. The legal

definition of a small-scale enterprise varies by industry and

country.

Defining small-scale industry is a difficult task because the

definition of small-scale industry varies from country to

country and from one time to the another in the same country

depending upon the pattern and stage of development,

government policy and administrative set up of the particular

country.

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The Fiscal Commission, Government of India, New Delhi,

1950, for the first time defined a small-scale industry as, one

which is operated mainly with hired labour usually 10 to 50

hands.

The new Policy Initiatives in 1999-2000 defined small-scale

industry as a unit engaged in manufacturing, repairing,

processing and preservation of goods having investment in

plant and machinery at an original cost not exceeding Rs. 100

lakhs.

For small-scale industries, the Planning Commission of India

uses terms 'village an small-scale industries'. These include

modern small-scale industry and the traditional cottage and

household industry.

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The U.S. Small Business Administration states that small-scale

enterprises generally have fewer than 500 employees within a

12-month period in non-manufacturing industries.

A company must consider any individual on its payroll as an

employee. In Australia, however, a small-scale enterprise is

one that has fewer than 15 employees on payroll, as defined

by the Fair Work Act.

The Small Business Act for Europe states that small

enterprises are those that have 250 employees or less.

Small-scale enterprises in Asian countries generally have 100

or fewer employees, while small-scale African enterprises hire

50 or fewer workers.

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Small Scale sector can stimulate economic activity and is entrusted

with the responsibility of realizing the following objectives:

To create more employment opportunities with less investment.

To remove economic backwardness of rural and less developed

regions of the economy.

To reduce regional imbalance.

To mobilize and ensure optimum utilization of unexploited resources

of the country.

To improve standard of living of people.

To ensure equitable distribution of income and wealth.

To solve unemployment problem.

To attain self reliance.

To adopt latest technology aimed at producing better quality

products at lower costs.

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The scope for entrepreneurial activities in small business sector can

broadly be classified into:

Industrial sector

Agricultural and allied industrial sector

Service sector

INDUSTRIAL SECTOR

Small scale industries occupy an important place in the industrial

sector. This sector provides a wider scope for the potential

entrepreneur to develop his or her own industry.

There is a good scope and enormous potential to use technology

based products in the small- scale sector. An entrepreneur can

exploit a profitable venture in any of the industries reserved for

exclusive department under the small- scale sector.

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AGRICULTURAL AND ALLIED INDUSTRIAL SECTOR

There is a vast cope for entrepreneurial activities in the agricultural

sector. By establishing a link between agriculture and allied

industries, the rural entrepreneur can exploit opportunities in areas

of farming, agricultural processing and marketing.

The government has given priority to IRDP programme and ensured

adequate flow of credit to small and marginal farmers through re-

financing facilities and by establishing national bank for agriculture

and small development.

Trading takes place in wholesaling and retailing. It may be in

domestic or overseas market. The retailer entrepreneur makes the

goods available at the time and places the consumer wants them. He

may decide to start single line store, specialty shop, departmental

store etc. trade in overseas market is in wholesale.

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SERVICE SECTOR

The service sector has gained importance for the entrepreneurs because of

its rapid expansion.

Service sector includes all kinds of business and provides opportunities to the

entrepreneurs in business such as hotels, tourist services, personal services

such as dry cleaning, beauty shops, photographic studies, auto repair, electric

repair shops, wielding repair etc.

Transport: They provide time and place utilities in urban and rural areas to

both men and material. The different modes or transport are of immense

importance in the areas, which are not served by roads and railways.

There is a scope for entrepreneur to design prototypes of new carts with the

application of indigenous technology so that they may have better mobility

and greater carrying capacity. The primary need in the rural area is an

efficient system of road transport.

The rural economy has a good opportunity for an entrepreneur to develop

some business. They can exploit possibilities for a venture in some shops or

services.

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The small-scale industries sector plays a vital role in the growth of the

country. It contributes almost 40% of the gross industrial value added in the

Indian economy.

It has been estimated that a million Rs. of investment in fixed assets in the

small scale sector produces 4.62 million worth of goods or services with an

approximate value addition of ten percentage points.

The small-scale sector has grown rapidly over the years. The growth rates

during the various plan periods have been very impressive. The number of

small-scale units has increased from an estimated 0.87 million units in the

year 1980-81 to over 3 million in the year 2000.

Employment

SSI Sector in India creates largest employment opportunities for the Indian

populace, next only to Agriculture. It has been estimated that 100,000 rupees

of investment in fixed assets in the small-scale sector generates employment

for four persons.

Export

SSI Sector plays a major role in India's present export performance. 45%-50%

of the Indian Exports is contributed by SSI Sector. Direct exports from the SSI

Sector account for nearly 35% of total exports. 11

Export

Besides direct exports, it is estimated that small-scale industrial units

contribute around 15% to exports indirectly. This takes place through

merchant exporters, trading houses and export houses. They may also be in

the form of export orders from large units or the production of parts and

components for use for finished exportable goods.

Opportunity

The opportunities in the small-scale sector are enormous due to the following

factors:

Less Capital Intensive

Extensive Promotion & Support by Government

Reservation for Exclusive Manufacture by small scale sector

Project Profiles

Funding - Finance & Subsidies

Machinery Procurement

Raw Material Procurement

Manpower Training12

Opportunity

The opportunities in the small-scale sector are enormous due to the following

factors:

Technical & Managerial skills

Tooling & Testing support

Reservation for Exclusive Purchase by Government

Export Promotion

Growth in demand in the domestic market size due to overall economic

growth

Increasing Export Potential for Indian products

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There are two stages of registration-provincial and permanent (final). An

enterprise is granted provincial registration when it is at a pre-investment

stage. After getting provincially registered, an enterprise can apply for

permanent registration just before launching its production facilities.

However, an enterprise that is already functioning need not have to apply for

provincial registration as it is eligible to apply for permanent registration.

Enterprises falling under the three categories (micro, small and medium) are

further categorized into two types of industries- manufacturing industry and

service industry. The status of an enterprise under the MSMED Act is

determined according to the investment slab under which an enterprise falls.

The main purpose of Registration is to maintain statistics and maintain a roll

of such units for the purposes of providing incentives and support services.

States have generally adopted the uniform registration procedures as per the

guidelines. However, there may be some modifications done by States. It

must be noted that small industries is basically a state subject.

States use the same registration scheme for implementing their own policies.

It is possible that some states may have a 'SIDO registration scheme' and a

'State registration scheme'.

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Objectives of the Registration Scheme

They are summarised as follows:

To enumerate and maintain a roll of small industries to which the package of

incentives and support are targeted.

To provide a certificate enabling the units to avail statutory benefits mainly

in terms of protection.

To serve the purpose of collection of statistics.

To create nodal centres at the Centre, State and District levels to promote

SSI.

Procedure for Registration

Features of the present procedures are as follows:

A unit can apply for PRC for any item that does not require industrial license

which means items listed in Schedule-III and items not listed in Schedule-I or

Schedule-II of the licencing Exemption Notification. Units employing less than

50/100 workers with/without power can apply for registration even for those

items included in Schedule-II.

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Procedure for Registration

Features of the present procedures are as follows:

Unit applies for PRC in prescribed application form. No field enquiry is done

and PRC is issued.

PRC is valid for five years. If the entrepreneur is unable to set up the unit in

this period, he can apply afresh at the end of five years period.

Once the unit commences production, it has to apply for permanent

registration on the prescribed form.

The following form basis of evaluation:

The unit has obtained all necessary clearances whether statutory or

administrative. e.g. drug license under drug control order, NOC from Pollution

Control Board, if required etc.

Unit does not violate any locational restrictions in force, at the time of

evaluation.

Value of plant and machinery is within prescribed limits.

Unit is not owned, controlled or subsidiary of any other industrial undertaking

as per notification.

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FUNCTIONS OF THE BOARD :

Issue of No Objection Certificates from the environmental pollution point of

view including adequacy of the site from the environmental angle.

Issue of Consent under provisions of section 25/26 of the Water (Prevention

and Control of Pollution) Act, 1974.

Issue of Consent under provisions of section-21 of the Air (Prevention and

Control of Pollution) Act, 1981.

Assessment and collection of Water Cess, under provision of Water

(Prevention and Control of Pollution) Cess Act, 1977.

Identification and assessment of industrial and municipal pollution sources

and control thereof.

Assessment of ambient air quality.

Assessment of quality of inland surface waters.

Mass awareness programmes.

Notification of effluent and emission standards.

Development of Pollution Control technologies.

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FUNCTIONS OF THE BOARD :

Instituting legal action against defaulters.

Issue of Authorization under the Hazardous Waste Management Rule, 1989.

Identification of isolated storages, onsite crisis management plans etc. under

the Manufacture, Storage and Import of Hazardous Chemicals Rules, 1989.

Implementation of Biomedical Waste Rules, 1998.

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The equipment selected should possess certain desirable characteristics or

meet certain criteria to be best suited to the desired task. Some of these

criteria are:

(a) Fit into the system;

(b) Be as simple as possible;

(c) Require minimum space;

(d) Be flexible and adaptable;

(e) Require minimum of loading, unloading and rehandling;

(f) Call for as little maintenance, repair, power and fuel as possible;

(g) Have a long useful life;

(h) Capable of higher capacity utilization;

(i) Perform the operation efficiently and economically.

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Establishing a small scale enterprise requires detailed project report so that

promoters can understand that in how many years the endowments can be

forfeited.

Project Report for Small Scale Industry helps in identifying the product line

and target market of the sector, besides evaluating the level of skill and

accuracy.

Hence, a small scale industry project report must contain 5-7 years

evaluations in context of revenues, expenditures, cash flows and outflows,

balance sheet of legal responsibilities and assets in hand, and reimbursement

agendas of working capital and long-term loans, etc.

In this way the endorsers can make use of the estimations provided by the

firm in the project reports and compare it with the real performance and

accordingly take remedial steps against the negative disparities.

The promoters establishing their commercial enterprises without considering

the project reports are taking a big risk as they are equipped with any

measuring units to assess the firm's performance. In the competitive market

ambiance, industrialist must not make a foray into a new sector or set up a

new business without preparing Project Reports.

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While preparing the project report for small scale industry always keep in

mind that the statistical figures are not discouraging for the promoters. The

project valuation should encourage a sense of practicality among them.

The other users who could require the project reports are industrialists,

Financiers, banks, Financial Analysts, merchants, clients, certifying

authorities, Management Accountants, etc

Specimen of Project Report

The standard format for preparing a project report for small scale industry is

listed in sequential order as below:

Introduction of the Research

Descriptions

Small scale sector

Auxiliary sectoral enterprises

Purposes and range of the Research

Methodology of the research work

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Promotional ideas and their association to the nature of the industry

Contemporary perception of advertising

Promotional method

Service sectors

Demand variable of several kinds of products

Break even assessments

Kinds of values

Chief techniques of costing

Break even ideas of costing

Drawbacks of small scale industries

Fundamentals for initiating a small scale industry

Drawbacks

Reasons of company failure

Explanations for dealing with financial crunch

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Management skills

Additional SIDO services

Fiscal Data

Technical support

Quality enhancement and analysis

Sectoral administration and guidance

Expansion programs: DIC and motivation in diffident areas

Technical advisory firm

Excise exclusion allowance

Commercial expansion strategies

Auxiliary development and sub- contracting exchanges

Upgrading plans

Government store procurement plan

Provision of goods for manufacturing

Fiscal aid

Conclusion

References

Bibliography 23

Basically, CPM (Critical Path Method) and PERT (Programme Evaluation Review

Technique) are project management techniques, which have been created

out of the need of Western industrial and military establishments to plan,

schedule and control complex projects.

Planning, Scheduling (or organising) and Control are considered to be basic

Managerial functions, and CPM/PERT has been rightfully accorded due

importance in the literature on Operations Research and Quantitative

Analysis.

Far more than the technical benefits, it was found that PERT/CPM provided a

focus around which managers could brain-storm and put their ideas together.

It proved to be a great communication medium by which thinkers and

planners at one level could communicate their ideas, their doubts and fears

to another level. Most important, it became a useful tool for evaluating the

performance of individuals and teams.

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There are many variations of CPM/PERT which have been useful in planning

costs, scheduling manpower and machine time. CPM/PERT can answer the

following important questions:

How long will the entire project take to be completed? What are the risks

involved?

Which are the critical activities or tasks in the project which could delay the

entire project if they were not completed on time?

Is the project on schedule, behind schedule or ahead of schedule?

If the project has to be finished earlier than planned, what is the best way to

do this at the least cost?

Essentially, there are six steps which are common to both the techniques. The

procedure is listed below:

Define the Project and all of it’s significant activities or tasks. The Project

(made up of several tasks) should have only a single start activity and a single

finish activity.

Develop the relationships among the activities. Decide which activities must

precede and which must follow others.

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Essentially, there are six steps which are common to both the techniques. The

procedure is listed below:

Draw the "Network" connecting all the activities. Each Activity should have

unique event numbers. Dummy arrows are used where required to avoid

giving the same numbering to two activities.

Assign time and/or cost estimates to each activity

Compute the longest time path through the network. This is called the

critical path.

Use the Network to help plan, schedule, monitor and control the project.

The Key Concept used by CPM/PERT is that a small set of activities, which

make up the longest path through the activity network control the entire

project. If these "critical" activities could be identified and assigned to

responsible persons, management resources could be optimally used by

concentrating on the few activities which determine the fate of the entire

project.

Non-critical activities can be re-planned, rescheduled and resources for them

can be reallocated flexibly, without affecting the whole project.

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Five useful questions to ask when preparing an activity network are:

Is this a Start Activity?

Is this a Finish Activity?

What Activity Precedes this?

What Activity Follows this?

What Activity is Concurrent with this?

Some activities are serially linked. The second activity can begin only after

the first activity is completed. In certain cases, the activities are concurrent,

because they are independent of each other and can start simultaneously.

This is especially the case in organisations which have supervisory resources

so that work can be delegated to various departments which will be

responsible for the activities and their completion as planned.

When work is delegated like this, the need for constant feedback and co-

ordination becomes an important senior management pre-occupation.

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Project appraisal methodologies are methods used to access a proposed

project's potential success and viability. These methods check the

appropriateness of a project considering things such as available funds and

the economic climate. A good project will service debt and maximize

shareholders' wealth.

The recommended analytical methods for appraisal are generally discounted

cash flow techniques which take into account the time value of money.

People generally prefer to receive benefits as early as possible while paying

costs as late as possible.

Costs and benefits occur at different points in the life of the project so the

valuation of costs and benefits must take into account the time at which they

occur. This concept of time preference is fundamental to proper appraisal

and so it is necessary to calculate the present values of all costs and benefits.

Net Present Value Method (NPV)

In the NPV method, the revenues and costs of a project are estimated and

then are discounted and compared with the initial investment. The preferred

option is that with the highest positive net present value. Projects with

negative NPV values should be rejected because the present value of the

stream of benefits is insufficient to recover the cost of the project.28

Discount rate

The discount rate is a concept related to the NPV method. The discount rate

is used to convert costs and benefits to present values to reflect the principle

of time preference. The calculation of the discount rate can be based on a

number of approaches including, among others:

The social rate of time preference

The opportunity cost of capital

Weighted average method

Internal Rate of Return (IRR)

The IRR is the discount rate which, when applied to net revenues of a project

sets them equal to the initial investment. The preferred option is that with

the IRR greatest in excess of a specified rate of return. An IRR of 10% means

that with a discount rate of 10%, the project breaks even.

The IRR approach is usually associated with a hurdle cost of capital/discount

rate, against which the IRR is compared. The hurdle rate corresponds to the

opportunity cost of capital. In the case of public projects, the hurdle rate is

the TDR. If the IRR exceeds the hurdle rate, the project is accepted.

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Benefit / Cost ratio (BCR)

The BCR is the discounted net revenues divided by the initial investment. The

preferred option is that with the ratio greatest in excess of 1. In any event, a

project with a benefit cost ratio of less than one should generally not

proceed. The advantage of this method is its simplicity.

Payback and Discounted payback

The payback period is commonly used as an investment appraisal technique

in the private sector and measures the length of time that it takes to recover

the initial investment. However this method presents obvious drawbacks

which prevent the ranking of projects. The method takes no account of the

time value of money and neither does it take account of the earnings after

the initial investment is recouped.

A variant of the payback method is the discounted payback period. The

discounted payback period is the amount of time that it takes to cover the

cost of a project, by adding the net positive discounted cashflows arising

from the project. It should never be the sole appraisal method used to assess

a project but is a useful performance indicator to contextualise the project’s

anticipated performance.

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Sensitivity analysis

Sensitivity analysis is the process of establishing the outcomes of the cost

benefit analysis which is sensitive to the assumed values used in the

analysis. This form of analysis should also be part of the appraisal for large

projects. If an option is very sensitive to variations in a particular variable

(e.g. passenger demand), then it should probably not be undertaken. If the

relative merits of options change with the assumed values of variables, those

values should be examined to see whether they can be made more reliable.

Scenario analysis

The scenario analysis technique is related to sensitivity analysis. Whereas the

sensitivity analysis is based on a variable by variable approach, scenario

analysis recognises that the various factors impacting upon the stream of

costs and benefits are inter-independent.

Switching values

This process of substituting new values on a variable-by-variable basis can be

referred to as the calculation of switching values. These can provide

interesting insights such as what change(s) would make the NPV equal zero or

alternatively, by how much must costs or benefits fall or rise, respectively, in

order to make a project worthwhile.31