BBA 504 SMALL BUSINESS AND ENTREPRENEURSHIP

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TOPIC- BUSINESS IDEA AND PROJECT FORMULATION

FACULTY MOHNISH MAKKAR

SALONI NANDA BBA 4519/09 SHUBHI SINGH BBA 4530/09 SALONI SHARMA BBA 4542/09

The Process Of developing a business idea

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Brainstorming New Product Innovations Screening Those Ideas Business Plan Implementation

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The Process - is like a funnel!

Creative / Soft-Thinking (Right Brain) brainstorm new product innovations

Logical / Hard-Thinking (Left Brain) formal business planning (opportunity screening, market forecasts, financial forecasts)

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Brainstorming
Requires creative thinking (soft-thinking) Here are some suggestions to improve the brainstorming process: 1. Choose a facilitator 2. Brainstorm spontaneously, copiously 3. No criticism, no negatives 4. Record ideas in full view 5. Invent to the void 6. Resist becoming committed to one idea 7. Identify the most promising ideas 8. Refine and prioritize

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Determining the need of a new product idea

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Type of need: Continuing need Declining need Emerging need Future need Timing of need: Duration of need (No of years/months) Frequency of need (Daily/quarterly/annually) Demand cycle(boom/down/seasonal) Position in life cycle(intro/mature/decline)

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Determining the need of a new product idea

v

Competing ways to satisfy the need Doing without it Using present way Modifying present way of using Perceived benefits/risks Utility to customer Appealing characteristics Customer tastes and preferences Buying motives Consumption habits

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Determining the need of a new product idea

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Price versus performance features Price vs quantity relationship Demand elasticity (sensitivity to price) Price of alternates/substitutes Stability of market Market size and potential Market growth Market trends Market development requirements Threats to market

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IDEAL Screening
Out of 100 ideas or more, there may be only one or two real opportunities. Superior business ideas that have the potential to become opportunities have 4 anchors:

1.They create or add significant value to a customer or end user. 2.They do so by solving a significant problem, or meeting a significant want or need, for which someone is willing to pay a premium. 3.They therefore have a robust market, profit margin, and moneymaking characteristics. 4.They are a good fit with the founder(s) and management team at the time and in the marketplace with a risk/reward balance.

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Characteristics of the "Ideal" Business Idea

Requires no initial investment Has a recognized, measurable market A perceived need for the product or service is present A dependable source of supply for the required inputs is available No government regulation Requires no labour force Provides 100 percent gross margin Buyers purchase frequently

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The Business Plan

Purposes:
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Fully examine the potential of an opportunity Identify key success factors Identify critical risk factors Guide the entrepreneur in start-up Raise capital

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Business Plan Dos

Involve all of the management team in its preparation Make the plan logical, comprehensive and readable - and short as possible Identify critical risks and assumptions Identify several alternative sources of financing. Be creative in gaining the interest of potential investors. Remember the plan is not the business

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Business Plan Donts

Dont have unnamed, mysterious people on the management team. Dont make ambiguous, vague or unsubstantiated statements such as estimating sales on the basis of what the team would like to produce Dont describe technical products using jargon that only an expert can understand. Dont spend money on developing fancy brochures

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A Good Business Plan is...

Complete Short Integrated Prepared for the audience Organized

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What is Project Formulation?

Taking a first look carefully and critically at the project idea Carefully weighing its various components Analyzing with the assistance of specialists or consultants Assessment of the various aspects of an investment proposition It is an important stage in the pre-investment phase

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Stages of Project Formulation

1.

Feasibility Analysis

2. Techno-Economic Analysis 3. Project Design and Network Analysis 4. Input Analysis 5. Financial Analysis 6. Cost-Benefit Analysis 7. Pre-Investment Analysis

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1. Feasibility Analysis:

First stage in project formulation Examination to see whether to go in for a detailed investment proposal or not Screening for internal and external constraints

Conclusion could be:

The project idea seems to be feasible The project idea is not a feasible one Unable to arrive at a conclusion for want of adequate data

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2. Techno-Economic Analysis:
Screens the idea to

Estimate of potential of the demand for goods/services Choice of optimal technology

This analysis gives the project a platform for preparation of detailed project design

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3. Project Design and Network Analysis:

It is the heart of the project entity It defines the sequence of events of the project Time is allocated for each activity It is presented in a form of a network drawing It helps to identify project inputs, finance needed and cost-benefit profile of the project

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4. Input Analysis:

Its assesses the input requirements during the construction and operation of the project It defines the inputs required for each activity Inputs include materials, human resources It evaluates the feasibility of the project from the point of view of the availability of necessary resources This aids in assessing the project cost

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5. Financial Analysis:

It involves estimating the project costs, operating cost and fund requirements It helps in comparing various project proposals on a common scale Analytical tools used are discounted cash flow, cost-volume-profit relationship and ratio analysis Investment decisions involve commitment of resources in future, with a long time horizon It needs caution and foresight in developing financial forecasts

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6. Cost- Benefit Analysis:

The overall worth of a project is considered The project design forms the basis of evaluation It considers costs that all entities have to bear and the benefit connected to it

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7. Pre-investment Analysis:

The results obtained in previous stages are consolidated to arrive at clear conclusions Helps the project-sponsoring body, the project-implementing body and the external consulting agencies to accept/reject the proposal

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Project Report
q

It is a concise copy of detailed analysis done for the project An entrepreneur/expert prepares the report before the investment in project is done The report assesses the demand for proposed product/service, works out cost of investment and profitability on this investment It acts as an instrument to convince investors to invest in the project

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A project report gives information on the following:

o

Economic aspects present market, scope for growth, justification for investment Technical aspects technology, machinery, equipment needed Financial aspects Total investment needed, entrepreneurs contribution, cost of capital and return on capital Production aspects Product details, justification for the choice of product, export worthiness Managerial aspects Qualifications, experience of people needed for managerial posts

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Contents of a project report

A.

Objectives and scope of the report Product characteristics (product design, specifications, quality standards, uses and applications) Market position and trends (current capacity for production, potential demand, export prospects, trends in import-export, price structure etc.) Raw materials (types, quality, sources, price) Manufacturing (process, production schedule, technique used)

A.

A.

A.

A.

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CONTINUED .
F. Plant and machinery (types, infrastructure support, cost) G. Land and building (Requirement, building construction schedule, choice of location, cost) H. Financial implications (Capital structure, fixed and working capital investment, project cost, profitability) I. Marketing channels (Trade practices, marketing and advertising strategy) J. Personnel (Requirement of staff, skilled-unskilled labour, salary and wage payment, qualifications, experience)

SUBMITION OF REPORT

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The project report is submitted to financial institutions for grant of land and other financial concessions Organizations like Small Industries Service Institute (SISI) and Small Industries Development Organization (SIDO) help entrepreneurs to prepare project report The financial institutions ascertain from the report, whether the project can generate enough funds to repay the borrowings in stipulated time frame

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