Notes of all Units

Methodist College of Engineering &Technology

Entrepreneurship

Unit I&II

Entrepreneurship:
Characteristics, Importance, Types, and Functions of Entrepreneurship
Entrepreneurial development today has become very significant; in view of its being a key to
economic development. The objectives of industrial development, regional growth, and
employment generation depend upon entrepreneurial development.

Entrepreneurs are, thus, the seeds of industrial development and the fruits of industrial
development are greater employment opportunities to unemployed youth, increase in per capita
income, higher standard of living and increased individual saving, revenue to the government in
the form of income tax, sales tax, export duties, import duties, and balanced regional
development.

Concept of Entrepreneurship:
The word “entrepreneur” is derived from the French verb enterprendre, which means ‘to
undertake’. This refers to those who “undertake” the risk of new enterprises. An enterprise is
created by an entrepreneur. The process of creation is called “entrepreneurship”.

Entrepreneurship is a process of actions of an entrepreneur who is a person always in search of

something new and exploits such ideas into gainful opportunities by accepting the risk and
uncertainty with the enterprise.

Characteristics of Entrepreneurship:
Entrepreneurship is characterized by the following features:
1. Economic and dynamic activity:
Entrepreneurship is an economic activity because it involves the creation and operation of an
enterprise with a view to creating value or wealth by ensuring optimum utilisation of scarce
resources. Since this value creation activity is performed continuously in the midst of uncertain
business environment, therefore, entrepreneurship is regarded as a dynamic force.

2. Related to innovation:
Entrepreneurship involves a continuous search for new ideas. Entrepreneurship compels an
individual to continuously evaluate the existing modes of business operations so that more
efficient and effective systems can be evolved and adopted. In other words, entrepreneurship is a
continuous effort for synergy (optimization of performance) in organizations.
3. Profit potential:
“Profit potential is the likely level of return or compensation to the entrepreneur for taking on the
risk of developing an idea into an actual business venture.” Without profit potential, the efforts
of entrepreneurs would remain only an abstract and a theoretical leisure activity.

4. Risk bearing:
The essence of entrepreneurship is the ‘willingness to assume risk’ arising out of the creation and
implementation of new ideas. New ideas are always tentative and their results may not be
instantaneous and positive.

An entrepreneur has to have patience to see his efforts bear fruit. In the intervening period (time
gap between the conception and implementation of an idea and its results), an entrepreneur has to
assume risk. If an entrepreneur does not have the willingness to assume risk, entrepreneurship
would never succeed.
Entrepreneurial Process:
Entrepreneurship is a process, a journey, not the destination; a means, not an end. All the
successful entrepreneurs like Bill Gates (Microsoft), Warren Buffet (Hathaway), Gordon Moore
(Intel) Steve Jobs (Apple Computers), Jack Welch (GE) GD Birla, Jamshedji Tata and others all
went through this process.

To establish and run an enterprise it is divided into three parts – the entrepreneurial job, the
promotion, and the operation. Entrepreneurial job is restricted to two steps, i.e., generation of an
idea and preparation of feasibility report. In this article, we shall restrict ourselves to only these

two aspects of entrepreneurial process.

Figure 4.1: The Entrepreneurial Process

1. Idea Generation:
To generate an idea, the entrepreneurial process has to pass through three stages:

a. Germination:
This is like seeding process, not like planting seed. It is more like the natural seeding. Most
creative ideas can be linked to an individual’s interest or curiosity about a specific problem or
area of study.

b. Preparation:
Once the seed of interest curiosity has taken the shape of a focused idea, creative people start a
search for answers to the problems. Inventors will go on for setting up laboratories; designers
will think of engineering new product ideas and marketers will study consumer buying habits.

c. Incubation:
This is a stage where the entrepreneurial process enters the subconscious intellectualization. The
sub-conscious mind joins the unrelated ideas so as to find a resolution.

2. Feasibility study:
Feasibility study is done to see if the idea can be commercially viable.

It passes through two steps:

a. Illumination:
After the generation of idea, this is the stage when the idea is thought of as a realistic creation.
The stage of idea blossoming is critical because ideas by themselves have no meaning.

b. Verification:
This is the last thing to verify the idea as realistic and useful for application. Verification is
concerned about practicality to implement an idea and explore its usefulness to the society and
the entrepreneur.

Importance of Entrepreneurship:
Entrepreneurship offers the following benefits:
1. Development of managerial capabilities:
The biggest significance of entrepreneurship lies in the fact that it helps in identifying and
developing managerial capabilities of entrepreneurs. An entrepreneur studies a problem,
identifies its alternatives, compares the alternatives in terms of cost and benefits implications,
and finally chooses the best alternative.

This exercise helps in sharpening the decision making skills of an entrepreneur. Besides, these
managerial capabilities are used by entrepreneurs in creating new technologies and products in
place of older technologies and products resulting in higher performance.

2. Creation of organisations:
Entrepreneurship results into creation of organisations when entrepreneurs assemble and
coordinate physical, human and financial resources and direct them towards achievement of
objectives through managerial skills.
3. Improving standards of living:
By creating productive organisations, entrepreneurship helps in making a wide variety of goods
and services available to the society which results into higher standards of living for the people.

Possession of luxury cars, computers, mobile phones, rapid growth of shopping malls, etc. are
pointers to the rising living standards of people, and all this is due to the efforts of entrepreneurs.

4. Means of economic development:

Entrepreneurship involves creation and use of innovative ideas, maximisation of output from
given resources, development of managerial skills, etc., and all these factors are so essential for
the economic development of a country.

Factors affecting Entrepreneurship:

Entrepreneurship is a complex phenomenon influenced by the interplay of a wide variety of
factors.

Some of the important factors are listed below:

1. Personality Factors:
Personal factors, becoming core competencies of entrepreneurs, include:

(a) Initiative (does things before being asked for)

(b) Proactive (identification and utilisation of opportunities)

(c) Perseverance (working against all odds to overcome obstacles and never complacent with
success)

(d) Problem-solver (conceives new ideas and achieves innovative solutions)

(e) Persuasion (to customers and financiers for patronisation of his business and develops &
maintains relationships)

(f) Self-confidence (takes and sticks to his decisions)

(g) Self-critical (learning from his mistakes and experiences of others)

(h) A Planner (collects information, prepares a plan, and monitors performance)

(i) Risk-taker (the basic quality).

2. Environmental factors:
These factors relate to the conditions in which an entrepreneur has to work. Environmental
factors such as political climate, legal system, economic and social conditions, market situations,
etc. contribute significantly towards the growth of entrepreneurship. For example, political
stability in a country is absolutely essential for smooth economic activity.

Frequent political protests, bandhs, strikes, etc. hinder economic activity and entrepreneurship.
Unfair trade practices, irrational monetary and fiscal policies, etc. are a roadblock to the growth
of entrepreneurship. Higher income levels of people, desire for new products and sophisticated
technology, need for faster means of transport and communication, etc. are the factors that
stimulate entrepreneurship.

Thus, it is a combination of both personal and environmental factors that influence

entrepreneurship and brings in desired results for the individual, the organisation and the society.

Types of Entrepreneurs:
Depending upon the level of willingness to create innovative ideas, there can be the
following types of entrepreneurs:
1. Innovative entrepreneurs:
These entrepreneurs have the ability to think newer, better and more economical ideas of
business organisation and management. They are the business leaders and contributors to the
economic development of a country.

Inventions like the introduction of a small car ‘Nano’ by Ratan Tata, organised retailing by
Kishore Biyani, making mobile phones available to the common may by Anil Ambani are the
works of innovative entrepreneurs.

2. Imitating entrepreneurs:
These entrepreneurs are people who follow the path shown by innovative entrepreneurs. They
imitate innovative entrepreneurs because the environment in which they operate is such that it
does not permit them to have creative and innovative ideas on their own.

Such entrepreneurs are found in countries and situations marked with weak industrial and
institutional base which creates difficulties in initiating innovative ideas.

In our country also, a large number of such entrepreneurs are found in every field of business
activity and they fulfill their need for achievement by imitating the ideas introduced by
innovative entrepreneurs.

Development of small shopping complexes is the work of imitating entrepreneurs. All the small
car manufacturers now are the imitating entrepreneurs.
3. Fabian entrepreneurs:
The dictionary meaning of the term ‘fabian’ is ‘a person seeking victory by delay rather than by
a decisive battle’. Fabian entrepreneurs are those individuals who do not show initiative in
visualising and implementing new ideas and innovations wait for some development which
would motivate them to initiate unless there is an imminent threat to their very existence.

4. Drone entrepreneurs:
The dictionary meaning of the term ‘drone’ is ‘a person who lives on the labor of others’. Drone
entrepreneurs are those individuals who are satisfied with the existing mode and speed of
business activity and show no inclination in gaining market leadership. In other words, drone
entrepreneurs are die-hard conservatives and even ready to suffer the loss of business.

5. Social Entrepreneur:
Social entrepreneurs drive social innovation and transformation in various fields including
education, health, human rights, workers’ rights, environment and enterprise development.

They undertake poverty alleviation objectives with the zeal of an entrepreneur, business practices
and dare to overcome traditional practices and to innovate. Dr Mohammed Yunus of Bangladesh
who started Gramin Bank is a case of social entrepreneur.

Functions of an Entrepreneur:
The important functions performed by an entrepreneur are listed below:
1. Innovation:
An entrepreneur is basically an innovator who tries to develop new technology, products,
markets, etc. Innovation may involve doing new things or doing existing things differently. An
entrepreneur uses his creative faculties to do new things and exploit opportunities in the market.
He does not believe in status quo and is always in search of change.

2. Assumption of Risk:
An entrepreneur, by definition, is risk taker and not risk shirker. He is always prepared for
assuming losses that may arise on account of new ideas and projects undertaken by him. This
willingness to take risks allows an entrepreneur to take initiatives in doing new things and
marching ahead in his efforts.

3. Research:
An entrepreneur is a practical dreamer and does a lot of ground-work before taking a leap in his
ventures. In other words, an entrepreneur finalizes an idea only after considering a variety of
options, analyzing their strengths and weaknesses by applying analytical techniques, testing their
applicability, supplementing them with empirical findings, and then choosing the best
alternative. It is then that he applies his ideas in practice. The selection of an idea, thus, involves
the application of research methodology by an entrepreneur.
4. Development of Management Skills:
The work of an entrepreneur involves the use of managerial skills which he develops while
planning, organizing, staffing, directing, controlling and coordinating the activities of business.
His managerial skills get further strengthened when he engages himself in establishing
equilibrium between his organization and its environment.

However, when the size of business grows considerably, an entrepreneur can employ
professional managers for the effective management of business operations.

5. Overcoming Resistance to Change:

New innovations are generally opposed by people because it makes them change their existing
behavior patterns. An entrepreneur always first tries new ideas at his level.

It is only after the successful implementation of these ideas that an entrepreneur makes these
ideas available to others for their benefit. In this manner, an entrepreneur paves the way for the
acceptance of his ideas by others. This is a reflection of his will power, enthusiasm and energy
which helps him in overcoming the society’s resistance to change.

6. Catalyst of Economic Development:

An entrepreneur plays an important role in accelerating the pace of economic development of a
country by discovering new uses of available resources and maximizing their utilization.

To better appreciate the concept of an entrepreneur, it is desirable to distinguish him from an

entrepreneur and promoter. Table 4.1 outlines the distinction between an entrepreneur and
entrepreneurs, and Table 4.2 portrays basic points of distinction between an entrepreneur and
promoter.

Some Myths about Entrepreneurship:

Over the years, a few myths about entrepreneurship have developed. These are as under:

(i) Entrepreneurs, like leaders, are born, not made:

The fact does not hold true for the simple reason that entrepreneurship is a discipline comprising
of models, processes and case studies.

One can learn about entrepreneurship by studying the discipline.

(ii) Entrepreneurs are academic and socially misfits:

Dhirubai Ambani had no formal education. Bill Gates has been a School drop-out. Therefore,
this description does not apply to everyone. Education makes an entrepreneur a true
entrepreneur. Mr Anand Mahindra, Mr Kumar Mangalam Birla, for example, is educated
entrepreneurs and that is why they are heroes.
(iii) To be an entrepreneur, one needs money only:
Finance is the life-blood of an enterprise to survive and grow. But for a good idea whose time
has come, money is not a problem.

(iv) To be an entrepreneur, a great idea is the only ingredient:

A good or great idea shall remain an idea unless there is proper combination of all the resources
including management.

(v) One wants to be an entrepreneur as having no boss is great fun:

It is not only the boss who is demanding; even an entrepreneur faces demanding vendors,
investors, bankers and above all customers.

An entrepreneur’s life will be much simpler, since he works for himself. The truth is working for
others are simpler than working for oneself. One thinks 24 hours a day to make his venture
successful and thus, there would be a punishing schedule.

GROWTH OF ENTREPRENEURSHIP IN INDIA

The proper understanding of the growth of entrepreneurship of any countr
y w o u l d evolve within the context of the economic history of the particular country becomes the
subject matter of this section. The growth of entrepreneurship in India is,
therefore, presented into two sections viz.

•Entrepreneurship during Pre-Independence

•Entrepreneurship during Post-Independence

ENTREPRENEURSHIP DURING PRE-INDEPENDENCE

The evolution of the Indian entrepreneurship can be traced back to even as early as
Rig-Veda, when metal handicrafts existed in the society. This would bring the point home that
handicrafts entrepreneurship in India was as old as the human civilization itself, and was nurtured
by the craftsman as a part of their duty towards the society. Before India came into
contact with west, people were organized in a particular type of economic
ands o c i a l s y s t e m o f t h e v i l l a g e c o m m u n i t y . T h e n , t h e v i l l a g e c o m m u n i t y f e
a t u r e d t h e economic scene in India. The Indian towns were mostly religious and
aloof from the general life of country. The elaborated cast based diversion of workers
consisted of f a r m e r s , a r t i s a n s a n d r e l i g i o u s p r i e s t s . T h e m a j o r i t y o f t h e
artisans were treated as village servants.
Such compact system of village community effectively protecting village artisans
from the onslaughts of external competition was one of the important contributing
factors to the absence of localization of industry in ancient India. Evidently, organized industrial
activity was observable among the India artisans in a few recognizable products in the cities of
Banaras, Allahabad, Gaya, Puri & Mirzapur which were established on their river basins. Very
possibly this was because the rivers served as a means of transportation facilities. These artisan
industries flourished over the period b e c a u s e t h e R o y a l p a t r o n a g e w a s
to them to support them. The
workshops called‘kharkhanas’ came into existence. The craftsmen were br
o u g h t i n t o a n a s s o c i a t i o n pronounced as ‘guild system’. On the whole, perfection in art,
durability beyond doubt and appeal to the eye of the individual were the distinguishing qualities
inherent in the Indian craftsmanship that brought much everlasting laurels of name and
fame of the illustrious India in the past. To quote, Bengal enjoyed worldwide celebrity
for Corah, Lucknow for chintzes and Ahmadabad for dupttas, and dhotis, Nagpur for
silk boarded cloth, Kashmir for shawls and Banaras for metal wares. Thus, form the immemorial
till the earlier years of the 18th century; India enjoyed the prestigious status of the queen of the
international trade with the help of its handicrafts. Unfortunately, so much prestigious Indian
handicraft industry, which was basically a c o t t a g e a n d s m a l l s e c t o r , d e c l i n e d a t
t h e e n d o f t h e 1 8 th century for various reasons. These may be listed as
➢ Disappearance of the Indian royal courts who patronized the crafts earlier.
➢ The lukewarm attitude of the British colonial govt. towards the Indian crafts.
➢ Imposition of heavy duties on the imports of the Indian goods in England.
➢ Low priced British made goods produce on large scale which reduced the
competing capacity of the product of the Indian handicrafts.
➢ Development of transport in Indian facilitating the easy access of British
product even to far-flung remote part of the country.
➢ Changes in the tastes and habits of the Indian, developing craziness of
foreign products.
➢ Unwillingness of the Indian craftsmen to adapt to the changing tastes and needs
of the people.
What is the Role of an Entrepreneur in Economic Development?

The entrepreneur who is a business leader looks for ideas and puts them into effect in fostering
economic growth and development. Entrepreneurship is one of the most important input in the
economic development of a country. The entrepreneur acts as a trigger head to give spark to
economic activities by his entrepreneurial decisions. He plays a pivotal role not only in the
development of industrial sector of a country but also in the development of farm
and service sector. The major roles played by an entrepreneur in the economic development of an
economy are discussed in a systematic and orderly manner as follows.
(1) Promotes Capital Formation:

Entrepreneurs promote capital formation by mobilising the idle savings of public. They employ
their own as well as borrowed resources for setting up their enterprises. Such type of
entrepreneurial activities lead to value addition and creation of wealth, which is very essential for
the industrial and economic development of the country.

(2) Creates Large-Scale Employment Opportunities:

Entrepreneurs provide immediate large-scale employment to the unemployed which is a chronic
problem of underdeveloped nations. With the setting up.of more and more units by entrepreneurs,
both on small and large-scale numerous job opportunities are created for others. As time passes,
these enterprises grow, providing direct and indirect employment opportunities to many more. In
this way, entrepreneurs play an effective role in reducing the problem of unemployment in the
country which in turn clears the path towards economic development of the nation.
(3) Promotes Balanced Regional Development:

Entrepreneurs help to remove regional disparities through setting up of industries in less developed
and backward areas. The growth of industries and business in these areas lead to a large number
of public benefits like road transport, health, education, entertainment , etc. Setting up of more
industries lead to more development of backward regions and thereby promotes balanced regional
development.

(4) Reduces Concentration of Economic Power:

Economic power is the natural outcome of industrial and business activity. Industrial development
normally lead to concentration of economic power in the hands of a few individuals which results
in the growth of monopolies. In order to redress this problem a large number of entrepreneurs need
to be developed, which will help reduce the concentration of economic power amongst the
population.
(5) Wealth Creation and Distribution:

It stimulates equitable redistribution of wealth and income in the interest of the country to more
people and geographic areas, thus giving benefit to larger sections of the society. Entrepreneurial
activities also generate more activities and give a multiplier effect in the economy.

(6) Increasing Gross National Product and Per Capita Income:

Entrepreneurs are always on the look out for opportunities. They explore and exploit
opportunities,, encourage effective resource mobilisation of capital and skill, bring in new products
and services and develops markets for growth of the economy. In this way, they help increasing
gross national product as well as per capita income of the people in a country. Increase in gross
national product and per capita income of the people in a country, is a sign of economic growth.
(6) Improvement in the Standard of Living:
Increase in the standard of living of the people is a characteristic feature of economic development
of the country. Entrepreneurs play a key role in increasing the standard of living of the people by
adopting latest innovations in the production of wide variety of goods and services in large scale
that too at a lower cost. This enables the people to avail better quality goods at lower prices which
results in the improvement of their standard of living.
(7) Promotes Country's Export Trade

Entrepreneurs help in promoting a country's export-trade, which is an important ingredient of

economic development. They produce goods and services in large scale for the purpose earning
huge amount of foreign exchange from export in order to combat the import dues requirement.
Hence import substitution and export promotion ensure economic independence and development.

(8) Induces Backward and Forward Linkages:

Entrepreneurs like to work in an environment of change and try to maximise profits by innovation.
When an enterprise is established in accordance with the changing technology, it induces backward
and forward linkages which stimulate the process of economic development in the country.

(9) Facilitates Overall Development:

Entrepreneurs act as catalytic agent for change which results in chain reaction. Once an enterprise
is established, the process of industrialisation is set in motion. This unit will generate demand for
various types of units required by it and there will be so many other units which require the output
of this unit. This leads to overall development of an area due to increase in demand and setting up
of more and more units. In this way, the entrepreneurs multiply their entrepreneurial activities,
thus creating an environment of enthusiasm and conveying an impetus for overall development of
the area.

Indian Industrial Environment –opportunities and challenges

The Indian economy has survived the global downturn very well. It has posted one of the highest
rates of economic growth in the world despite other major industrial giants lagging behind. At
the end of 2009, the Indian economy was growing at 7% a year. The strongest growth was coming
from the manufacturing and construction sector and the weakest section was agriculture. The
strong rate of economic growth boosts prospects for the Indian Rupee in the years to come. The
drawback of such a rapid economic expansion is a rise in inflation.The economy of India is the
eleventh largest economy in the world by nominal GDP. Post independence the country went
into a fast paced economic growth which was further fuelled by the free market principles started
in the 1990’s which welcomed foreign investments. It has been predicted by leading Economists
around the world that by 2020, India will be among the leading economies of the world.

Four key industrial economic sectors are identified in India. The primary sector, largely extract
raw material and they are mining and farming industries. In the secondary sector, refining,
construction, and manufacturing are included. The tertiary sector deals with services and
distribution of manufactured goods. India's service industry accounts for 57.2% of the country's
GDP while the industrial and agricultural sector contribute 28% and 14.6% respectively.
Agriculture is the predominant occupation in India, accounting for about 52% of direct and indirect
employment. The service sector makes up a further 34%, and industrial sector around 14%. The
labour force totals around half a billion workers. Industry accounts for 28% of the GDP and employ
14% of the total workforce.

Economic reforms brought foreign competition in the industrial scenario, led to privatization of
certain public sector industries, opened up sectors hitherto reserved for the public sector and led
to an expansion in the production of fast-moving consumer goods. Textile industry is the second
largest source for employment after agriculture and accounts for 26% of manufacturing
output.Information technology is one among the fastest growing sector contributing to one third
of the total output of services. The growth in the IT sector is attributed to increased specialization,
and an availability of a large pool of low cost, highly skilled, educated and fluent English-speaking
workers around the country. Cities like Bangalore, Hyderabad and Pune have established
themselves as major IT hubs in the country.

The Indian environment is suffering a great deal due to this industrialization. Pollution,
deforestation, and the destruction of flora and fauna continue to skyrocket. But industrialization
did have good outcomes. Material well-being and improved health care came to our doorsteps.
New goods, new choices and new comforts came about. It also led the way for other ideas such as
women’s rights, human rights, right to information and child labor laws, etc. Simply stated,
industrialization did have its good aspects as well as its bad on India. But indeed the Industrial
Revolution was a huge achievement.

India Industry

Over the years agriculture has been the major source of livelihood of the Indian population.
However, after Independence the founding fathers saw the nation progressing with a decent
industrial base. This triggered the formulation of programs and strategies to construct a proper
infrastructure for speedy industrialization.

India has been successful in achieving autonomy in producing different basic and capital
products since independence. The productivity of the major Indian industries incorporates
aircraft, vessels, automobiles, steam engines, heavy electrical equipment, construction
machinery, chemicals, precision equipments, communication instrument, power generation and
transmission tools and computers.
Industrialization in India

Since independence to 1980: During this period there was restrictive growth of private sector and
government's permission was required to set up any private enterprise in India. Despite this the
GDP grew at a rate of 1.4% per annum from 1940 – 1970. Other factors such as poverty and
famine lowered India's economic growth rate during this period and with the presence of very
few top producers of major industrial goods the absorption of domestic productivity was greater,
which lead to monopolistic pricing. India during this phrase lagged behind in terms of economic
growth as the rest of world grew and flourished through overseas trade.

1980 to mid-1990s: Post 1980s India saw liberalization and achieved further impetus in Mid-
1991. The nation witnessed historical upsurge in per capita GNP. In 1994-95 the industrial
output-growth registered 8.4% growth and the exports rose by 27%. This resulted in a 10% drop
in inflation in the mid-1990s

1990s to 2000s: Since its liberalization policy, India has opened several public sector enterprises.
The exports saw a 17% rise in 1994 and 28% in 1995-96. Over 90% of India's imports are
backed by export revenues. At present the current account arrears is less than 1% of GDP and
foreign-exchange profits are soaring at $20 billion. The food stocks have witnessed an all-time
increase of 37m tonnes.The private sector, which was neglected by previous governments,
contributes to two-thirds of India's GDP. The shift of the state's responsibility from a chief
investor to a catalyst of private enterprise has paved way to a new accord on liberalization.

Industries in India

Experts believe that the contribution of India in the world GDP is estimated to increase from 6%
to 11% by the year 2025, while on the flip side the contribution of US in world GDP is presumed
to decline from 21% to 18%. This indicates towards the emergence of India as the third biggest
global economy after US and China. The evaluation is supported by the overall development in
all the sectors in India, in which the key sector is the industry sector.

Going by the past records the Industry sector in India registered a growth rate of 6.2% in October
2003 which further increased by 4% in the corresponding month of the next fiscal year.

Major Industries in India

• Textile Industry

This industry covers a wide range of activities ranging from generation of raw materials
such as jute, wool, silk and cotton to greater value added goods such as ready made garments
prepared from different types of man made or natural fibres. Textile industry provides job
opportunity to over 35 million individuals thus playing a major role in the nation's economy.
It has 4 per cent share in GDP and shares 35% of the gross export income besides adding
14% of value addition in merchandizing sector.

• Food Processing Industry

 In terms of global food business, India accounts less than 1.5% inspite of being one of the
key food producing nations worldwide. But this on the other hand also indicates the
enormous possibilities for the growth of this industry. Supported by the GDP estimates, the
approximate expansion of this sector is between 9-12% and during the tenth plan period the
growth rate was around 6-8%. Food Processing Industry provides job opportunities to 1.6
mn people and it is estimated to expand by 37 mn by 2025.

• Chemical Industry:

Indian Chemical industry generates around 70,000 commercial goods ranging from plastic
to toiletries and pesticides to beauty products. It is regarded as the oldest domestic sector in
India and in terms of volume it gives a sense of pride to India by featuring as the 12 largest
producer of chemicals. With an approximate cost of $28 billion, it amounts to 12.5% of the
entire industrial output of India and 16.2% of its entire exports. Under Chemical industries
some of the other rapidly emerging sectors are petrochemical, agrochemical, and
pharmaceutical industries.

• Cement Industry:

India has 10 large cement plants governed by the different State governments. Besides this
India have 115 cement plants and around 300 small cement plants. The big cement plans
have installed competence of 148.28 million tones per annum whereas the mini cement
plants have the total capacity of 11.10 million tonnes per annum. This totals the capacity of
Indian cement industry at 159.38 million tonnes. Ambuja cement, J K Cement, Aditya
Cement and L & T Cement are some of the major steel companies in India.

• Steel Industry:

Indian Steel Industry is a 400 years old sector which has a past record of registering 4%
growth in 2005-06. The production during this period reached at 28.3 million tones. India
steel industry is the 10th largest in the world which is evident from its Rs 9,000 crore of
capital contribution and employment opportunities to more than 0.5 million people. The key
players in Steel Industry are Steel Authority of India (SAIL), Bokaro Steel Plant, Rourkela
Steel Plant, Durgapur Steel Plant and Bbilai Steel Plant.

• Software Industry:

Software Industry registered a massive expansion in the last 10 years. This industry signifies
India's position as the knowledge based economy with a Compounded Annual Growth Rate
(CAGR) of 42.3%. In the year 2008, the industry grew by 7% as compared to 0.59% in
1994-95.

• Mining Industry:

The GDP contribution of the mining industry varies from 2.2% to 2/5% only but going by
the GDP of the total industrial sector it contributes around 10% to 11%. Even mining done
 on small scale contributes 6% to the entire cost of mineral production. Indian Mining
Industry provides job opportunities to around 0.7 million individuals.

• Petroleum Industry:

Petroleum industry started its operations in the year 1867 and is considered as the oldest
Indian industry. India is one of the most flourishing oil markets in the world and in the last
few decades has witnessed the expansion of top national companies like ONGC, HPCL,
BPCL and IOC.

Brief notes on Industrial Policy of India, 1948

After gaining independence on August 15, 1947 it was necessary to give new policy for indus-
trial development, decide priority areas and clear doubts in the minds of private entrepreneurs
regarding nationalization of existing industries.

The Government of India announced its Industrial Policy Resolution (IPR) on April 6, 1948
whereby both public and private sectors were involved towards industrial development.
Accordingly, the industries were divided into four broad categories:

(a) Exclusive State Monopoly-This includes the manufacture of arms and ammunition, produc-
tion and control of atomic energy and the ownership and management of railway transport.
These industries were the exclusive monopoly of the Central Government.

(b) State Monopoly for New Units-This category included coal, iron and steel, aircraft manu-
facture, ship building, manufacture of telephone, telegraphs and wireless (apparatus
(excluding radio receiving sets) and mineral oils. New undertakings in this category could
henceforth be undertaken only by the State.

(c) State Regulation-This category included industries of such basic importance like machine
tools, chemicals, fertilizers, non-ferrous metals, rubber manufactures, cement, paper, newsprint,
automobiles, electric engineering etc. which the Central Government would feel necessary to
plan and regulate.

(d) Unregulated private enterprise-the industries in this category were left open to the private
sector, individual as well as cooperative.

Industrial Policy Resolution 1956

1. Classification of Industries:
The government of India has classified industries into three categories. These categories are as
under:

(a) Government Enterprises:

In schedule 'A', 17 industries have been kept. These industries are reserved for public sector. The
industries that have been put under this category are of basic and strategic importance. They need
enormous capital for development. The government has the exclusive control over these
industries. The industries under the Schedule 'A' are as follows:
(i) Arms, ammunitions and allied items of defense equipment; (ii) Atomic energy; (iii) Heavy
casting and forging of iron and steel; (iv) Iron and Steel; (v) Heavy plants and machinery
required for basic industries; (vi) Heavy electrical plants including large hydraulic and steam
turbines; (vii) Coal and Lignite; (viii) Mineral Oils; (ix) Mining of iron ore, manganese ore,
gypsum, sulphur, gold and diamond; (x) Minerals for atomic energy; (xi) Mining and processing
of copper; (xii) Aircraft; (xiii) Air transport; (xiv) Railway transport; (xv) Ship-building; (xvi)
Telephones and telephone cables; (xvii) Generation and distribution of electricity.
(b) Mixed Enterprises:

In the second category, there are twelve industries shown in schedule 'B' which will be
progressively state owned and in which the state will generally take the initiative in establishing
these new undertakings. At the same time, private enterprise will also have the opportunity to
develop in these fields. Under Schedule 'B', the industries are:

(i) All minerals except minor minerals as defined in Section 3 of the Minerals Concession Rules,
1949; (ii) Aluminum and other non-ferrous metals not included in Schedule 'A'; (iii) Machine
tools ; (iv) Ferro alloys and tool steels; (v) Basic and intermediate products required by chemical
industries like drugs, dye-stuffs and plastics; (vi) Antibiotics and other essential drugs; (vii)
Fertilizers; (viii) Synthetic rubber; (ix) Carbonization of coal; (x) Chemical pulp; (xi) Road
transport and (xii) Sea transport.

(c) Private Enterprises:

All the remaining industries come under the third category and their development, in general, has
been left open though it will be up to the state government to start any industry in this category.
The state has proposed to facilitate and encourage the development of these industries in
accordance with the programs formulated in successive five year plans. They also ensured the
facilities of transport, power and other services and all other appropriate fiscal measures.
2. Role of Cottage and Small Scale Industries:

The Industrial Policy has laid special emphasis on giving every encouragement to cottage and
small scale industries. The role of such industries has been approved by the resolution in the
development of the national economy since they provide immediate large-scale employment,
equitable distribution of the national income and facilitate an effective mobilization of resources
and skill which might otherwise remain unutilized.
The new policy supports the idea of establishing the industrial estates and the rural community
workshops to eliminate their deficiencies.

The state has been endeavoring to foster by restricting the value of production in large scale
industries by giving incentives, facilities of raw material, marketing facilities, cheap electricity
and finance etc.

3. Private Sector Assistance and Control:

The policy of 1956 will facilitate and encourage the private enterprise in the development of
industries according to the programmes and policies of the successive five-year plans.

Industrial undertakings in the private sector are required to fit into the framework of the social
and economic environment of the state.

This will be strictly to the subject of control and regulation of the State Development and
Regulation Act 1951 and other relevant legislations.

The policy further added that the state would continue to provide fair and non-discriminatory
treatment to both public and private enterprises when both exist side by side in a particular
industry.

4. Reduction of Regional Disparities:

The industrial policy resolution stresses the reduction of disparities in levels of development
between different regions. It aims at industrialization which may benefit the economy of the
country as a whole.

The resolution supports the idea of a balanced and coordinated development of the industrial and
the agricultural sectors in each region for attaining higher standards of living. To achieve this
aim, transport, power supply and other facilities will be made available to the backward sector.

5. No Water-tight Compartments:

The division of industries into different categories does not imply that they are placed in water-
tight compartments. Towards this end, the private sector might produce an item for meeting the
requirements of the industry.

Similarly, heavy industries in the public sector may obtain some of their requirements of lighter
components from the private sector.

Therefore, the public and private enterprises are expected to operate closely together in spite of
the fact that the major partner is the public sector.

6. Technical and Managerial Personnel:

The industrial policy of 1956 emphasizes on the provision of managerial and technical personnel
in public services to meet the rapidly growing needs of the public sector and for the development
of the cottage and small scale industries.

This includes setting up of technical staff cells in the public sector and to organize apprenticeship
schemes on a large scale. They also laid down the stress on the training in business management.

7. Decentralization of Powers:

The industrial policy recognizes that with the growing participation of the state in industry and
trade, the management of these activities will assume considerable importance. Thus,
government recommends that there should be decentralization of authority and the management
of the state undertakings.

In their working, public enterprises should be given the largest possible place of freedom and
their success should be judged on the basis of total performance.

8. Labor Participation in Management:

The resolution accepted that in a socialist democracy, labor participation is very essential. Thus,
they must be provided a share in management i.e. the facility of joint consultation of workers
with management. Some laws governing industrial relations have been enacted. The
entrepreneurs in public sector have been asked to set an example in this regard.

9. Attitude towards Foreign Capital:

The attitude regarding foreign capital remained unchanged. The government suggested the
directions of Industrial Policy of 1948.

Fair and non-discriminatory treatment for the private sector, encouragement to village and small-
scale enterprises, removing regional disparities, and the need for the provision of amenities for
labor, and attitude to foreign capital were other salient features of the IPR 1956.

New Industrial Policy 1991:

The government announced a New Industrial Policy on July 24, 1991. This new policy
deregulates the industrial economy in a substantial manner.

The major objectives of the new policy are to build on the gains already made, correct the
distortions or weaknesses that might have crept in, maintain a sustained growth in productivity
and gainful employment, and attain international competitiveness. In pursuit of these objectives,
the government announced a series of initiatives in the new industrial policy as outlined below:

1. Abolition of Industrial Licensing:

In a major move to liberalize the economy, the new industrial policy abolished all industrial
licensing irrespective of the level of investment except for certain industries related to security
and strategic concerns, and social reasons.

Now there are only 6 industries for which licensing is compulsory as amended in February 1999.
These are alcohol, cigarettes, hazardous chemicals, drugs and pharmaceuticals, electronics,
aerospace and defense equipment, and industrial explosives.

2. Public Sector’s Role Diluted:

The number of industries reserved for the public sector since 1956 was seventeen. This number
has now been reduced to three. They are arms and ammunition and allied items of defense
equipment, atomic energy and rail transport.

The main elements of Government Policy towards Public Sector Undertakings (PSUs) are:

(i) Bring down government equity in all non-strategic PSUs to 26 per cent or lower, if necessary;

(ii) Restructure and revive potentially viable PSUs;

(iii) Close down PSUs which cannot be revived; and

(iv) Fully protect the interests of workers.

3. Abolition of Phased Manufacturing Programs:

Devaluation of currency and increasing FDI led government to liberalize local content
requirement for indigenous firms.

4. MRTP Act:
MRTP Act has been amended to remove the threshold limits of assets in respect of MRTP
companies and dominant undertakings.

The new industrial policy also states that the government will undertake review of the existing
public enterprises in low technology, small-scale and non-strategic areas. Sick units will be
referred to the Board for Industrial and Financial Reconstruction for advice about rehabilitation
and reconstruction.

For enterprises remaining in the public sector it is stated that they will be provided a much
greater degree of management autonomy through the system of Memorandum of Understanding
(MOU).

5. Free Entry to Foreign Investment and Technology:

The Government is committed to promote increased flow of Foreign Direct Investment (FDI) for
better technology, modernization, exports and for providing products and services of
international standards.

Therefore, the policy of the Government has been aimed at encouraging foreign investment
particularly in core infrastructure sectors so as to supplement national efforts. The salient
features of the FDI policy are:

(i) There are two modalities for FDI approval: a) automatic approval by the Reserve Bank, and
b) approval by Foreign Investment Promotion Board (FIPB)/Government.

(ii) 34 categories/groups of high priority industries identified on the basis of National Industrial
Classification qualify for automatic approval up to 50/51/74/100 per cent FDI depending on the
nature of activity.

(iii) Projects for electricity generation, transmission and distribution, and construction and
maintenance of roads, highways, vehicular tunnels, vehicular bridges, ports and harbours have
permitted foreign equity participation up to 100 per cent under the automatic route.

(iv) FIPB is required to dispose of applications for FDI within a time frame of six weeks.

(v) FDI is not permissible in agriculture, real estate and insurance activities.

(vi) Full repatriation of original investment and returns except for dividend balancing and foreign
exchange neutrality conditions in certain sectors.

(vii) Liberal access to foreign technology. Automatic approval to lump sum payment of up to US
$2 million and royalty at the rate of 5 per cent for domestic sales and 8 per cent for exports
subject to a total payment of 8 per cent on sales for a period not exceeding 7 years from the date
of commercial production.

(viii) Easy access to domestic debt. Foreign companies that invest in India can leverage in India
by way of domestic debt from domestic financial institutions.
(ix) Liberal external commercial borrowings and debt servicing norms.

(x) No ceiling on raising Global Depository Receipts (GDRs), American Depository Receipts
(ADRs), and Foreign Currency Convertible Bonds (FCCBs).

6. Industrial Location Policy Liberalised:

The new industrial policy provides that in locations other than cities of more than 1 million
populations, there will be no requirement of obtaining industrial approvals from the center,
except for industries subject to compulsory licensing.

In cities with a population of more than 1 million, industries other than those of a non-polluting
nature will be located outside 25 kms of the periphery. Since there is 23 cities in India with a
population of more than 1 million each, the new industrial policy has dispensed with government
clearance for the location of projects except in the case of these 23 cities.

7. Removal of Mandatory Convertibility Clause:

A large part of industrial investment in India is financed by loans from banks and financial
institutions. These institutions have followed a mandatory practice of including a convertibility
clause in their lending operations for new projects.

This has provided them an option of converting part of their loans into equity if felt necessary by
their management. The new industrial policy has provided that henceforth financial institutions
will not impose this mandatory convertibility clause.

Evolution of small- Scale industries in India

A significant feature of the Indian economy since independence is the rapid growth of the small-
scale industrial sector. Over the past five decades, successive governments have framed policies
to protect the interests of the small-scale industrial sector and facilitate its rapid development. In
pursuance of their policies, Governments have initiated various support measures from time to
time, which include reservation, revision of investment ceilings, modernization of technology,
marketing assistance, fiscal incentives etc. The small-scale sector owes its definition to the
Industries (Development and Regulation) Act, 1951.

The sector is defined in terms of value of investment in plant and machinery (original value).

1 Profile of small-scale industries

• 95 % of industrial units in the country.

• 39.92 % of value added in the manufacturing sector.

• 34.29 % of national exports.

• 6.86 % of Gross Domestic Product (GDP).

• Employment to 193 lakh persons.

Over 7500 items are produced in the small-scale industrial sector.

• 749 items have been reserved for exclusive manufacture in the small-scale industrial sector.

• 358 Items have been reserved for exclusive purchase from the small-scale industrial s

Industrialization has been a striking feature of Indian economic development since 1951. Industrial
production has gone up by about five times, making India the tenth most industrialized country in
the world. Small-scale industries play a vital role in the development of the national economy.
India is facing the problems of unemployment and paucity of capital resources. “The built in
characteristics of small scale industries, such as relatively small size of initial capital requirement,
entrepreneurship and employment generation potential, etc., render them the ideal for balanced
and decentralized development.”

The employment generated in small-scale factory units is nine times that of large establishments
for an investment of Rs.1 lakh in fixed assets. The small-scale industries assume great importance
in mitigating the problem of unemployment, in facilitating the growth of the industrial sector and
in ensuring all round development of the economy. “Cottage and small scale industries are of very
special importance in India. If we lack capital, we do not lack manpower, and we must use this
manpower both to add to the wealth of the country and to reduce unemployment”, Jawaharlal
Nehru said. Besides, small-scale industries avoid regional imbalances and facilitate decentralized
development in various parts of the country, including the remote areas, by effectively utilizing
the locally available raw materials and other resources, including work force. 3 Small scale
industries have emerged as a vibrant and dynamic sector of the Indian economy that contributes
around 40 per cent of the total industrial production and over 34 per cent of the national exports.
At present the Small Scale Industrial sector is providing employment to over 250 lakh persons.
The captains of our economy are more than aware of the importance of the small scale industries
in terms of employment potential, productivity, utilization of indigenous resources, balanced
regional development etc. In the words of Dr. ManMohan Singh, “the key to our success of
manufacturing in the small scale sector”. The small scale sector is important not only for its
contribution to GDP but also for its stellar performance in exports and in generating employment.
The small scale industrial sector is endowed with certain special features, which are especially
beneficial to our economy such as employment potential, indigenous nature, balanced
development of regions etc., when compared with large scale units. This sector facilitates speedy
development of the economy by providing employment opportunities to rural and less skilled
masses and caters to the consumption requirements of these people by resorting to indigenous
production making use of local resources. The entrepreneurs involved in running small-scale units
are generally termed small entrepreneurs. It is evident that small entrepreneurs outnumber large
entrepreneurs in every country. The “small sector”, as the name implies, consists of small-scale
industries.

We can divide the small-scale industries into the following three categories, viz.

1. Cottage Industries,

2. Agro- based industries,

3. Small industries.

In India, since the inception of planning, industrialization has been given priority and the Second
Five Year Plan (1955-60) laid a firm foundation for industrialization. In the subsequent five-year
plans, with the aim of achieving self-reliance and sustained economic growth, diversification of
industries, both in the private and public sector was envisaged. 4 Small-scale industries were also
given importance along with large scale and medium scale industries. The small-scale sector
received a boost in the Third Five Year plan (1960-65). The small-scale sector experienced a
phenomenal growth then. In terms of employment generation, this sector is next only to agriculture
and accounts for about 25 per cent of the total exports of the country. In terms of value added, it
contributes about 40 per cent of the manufacturing sector. About one third of the total industrial
production is contributed by the small-scale sector. It also provides employment opportunities to
12 million people (Kurien 1991). Thus, small-scale industries constitute a vital area in developing
countries like India.

Small-Scale Industries in India: Definition, Characteristic and Objectives!

In Indian economy small-scale and cottage industries occupy an important place, because of their
employment potential and their contribution to total industrial output and exports.

Government of India has taken a number of steps to promote them. However, with the recent
measures, small-scale and cottage industries facing both internal competition as well as external
competition.

There is no clear distinction between small-scale and cottage industries. However it is generally
believed that cottage industry is one which is carried on wholly or primarily with the help of the
members of the family. As against this, small-scale industry employs hired labour.
Moreover industries are generally associated with agriculture and provide subsidiary employment
in rural areas. As against this, small scale units are mainly located in urban areas as separate
establishments.
Definition:
The official definitions of a small scale unit are as follows:

(i) Small-Scale Industries:

These are the industrial undertakings having fixed investment in plant and machinery, whether
held on ownership basis or lease basis or hire purchase basis not exceeding Rs. 1 crore.

(ii) Ancillary Industries:

These are industrial undertakings having fixed investment in plant and machinery not exceeding
Rs. 1 crore engaged in or proposed to engage in,

(a) The manufacture of parts, components, sub-assemblies, tooling or intermediaries, or

(b) The rendering of services supplying 30 percent of their production or services as the case may
be, to other units for production of other articles.

(iii) Tiny Units:

These refer to undertakings having fixed investment in plant and machinery not exceeding Rs. 23
lakhs. These also include undertakings providing services such as laundry, Xeroxing, repairs and
maintenance of customer equipment and machinery, hatching and poultry etc. Located m towns
with population less than 50,000.

(iv) Small-Scale Service Establishments:

These mean enterprises engaged in personal or household services in rural areas and town with
population not exceeding 50000 and having fixed investment in plant and machinery not exceeding
Rs. 25 lakhs.

(v) Household Industries:

These cover artisans skilled craftsman and technicians who can work in their own houses if their
work requires less than 300 square feet space, less than 1 Kw power, less than 5 workers and no
pollution is caused. Handicrafts, toys, dolls, small plastic and paper products electronic and
electrical gadgets are some examples of these industries.

Characteristics of Small-Scale Industries:

(i) Ownership:
Ownership of small scale unit is with one individual in sole-proprietorship or it can be with a few
individuals in partnership.

(ii) Management and control:

A small-scale unit is normally a one man show and even in case of partnership the activities are
mainly carried out by the active partner and the rest are generally sleeping partners. These units
are managed in a personalised fashion. The owner is activity involved in all the decisions
concerning business.

(iii) Area of operation:

The area of operation of small units is generally localised catering to the local or regional demand.
The overall resources at the disposal of small scale units are limited and as a result of this, it is
forced to confine its activities to the local level.

(iv) Technology:
Small industries are fairly labour intensive with comparatively smaller capital investment than the
larger units. Therefore, these units are more suited for economics where capital is scarce and there
is abundant supply of labour.

(v) Gestation period:

Gestation period is that period after which teething problems are over and return on investment
starts. Gestation period of small scale unit is less as compared to large scale unit.

(vi) Flexibility:
Small scale units as compared to large scale units are more change susceptible and highly reactive
and responsive to socio-economic conditions.

They are more flexible to adopt changes like new method of production, introduction of new
products etc.

(vii) Resources:
Small scale units use local or indigenous resources and as such can be located anywhere subject
to the availability of these resources like labour and raw materials.

(viii) Dispersal of units:

Small scale units use local resources and can be dispersed over a wide territory. The development
of small scale units in rural and backward areas promotes more balanced regional development
and can prevent the influx of job seekers from rural areas to cities.

Objectives of Small Scale Industries:

The objectives of small scale industries are:

1. To create more employment opportunities with less investment.

2. To remove economic backwardness of rural and less developed regions of the economy.

3. To reduce regional imbalances.

4. To mobilise and ensure optimum utilisation of unexploited resources of the country.

5. To improve standard of living of people.

6. To ensure equitable distribution of income and wealth.

7. To solve unemployment problem.

8. To attain self-reliance.

9. To adopt latest technology aimed at producing better quality products at lower costs.

First Generation Entrepreneurs:

Generation Entrepreneur” are the new leaders and wealth creators. It started from Silicon Valley
as a dream for select few. But, now it’s a worldwide movement where everyone thinks
differently about business and about life in general. First Generation Entrepreneurs is a synonym
for New Entrepreneurs. Before setting up a new entrepreneurship an entrepreneur needs to
complete various procedural and legal hurdles. The difference between a First Generation
Entrepreneur and an established entrepreneur is they have nothing to loose. A new entrepreneur
can invest a small amount with the risk of loosing it. However, an established business man
needs to weigh its decision to invest only in profitable projects with less risk of loosing that
investment

Requisites:

A First Generation requires to run on an ideology to succeed in the long run. Some of these
qualities and listed below:

• Passion: An entrepreneur needs to have passion and hunger to succeed with his ideas.
Innovative business plans and complete dedication is most essential.

• Belief: Optimism is an important aspect of an entrepreneur. He needs to believe in himself to

keep the business up and standing.

• Getting Feedback: The market trend and customer feedback needs to be taken seriously. As that
is the only threshold a new entrepreneur has to improve and grow himself.
• Networking: An entrepreneur needs to make sure he is meeting the right people. The network
developed can get him more and more work by just a spread of word. He need to keep a track on
what his customer’s want and create products or services according to their demands.

• Written Business Plan: A small or a solo business needs a business plan to run on. It needs to
be written so that professionals can review it and cover the black areas. Also, a written article
makes a plan clearer to help getting on to the next stage of learning, planning and revising.

• Sufficient Start up Capital: To establish a successful entrepreneurship greatly requires a

sufficient amount of start up capital. A new entrepreneur needs to make conservative start up
plans in terms of cost. One of the main reasons for a new business to fail is the lack of capital. So
a new entrepreneur needs to have sufficient savings or acquired funds to support his business.

• Marketing tactics: A new entrepreneur needs to adapt innovative ideas to sell his product when
he stands against his competitors dominating the market for long. He should exploit his strengths
to sell his product rather than adopting all traditional methods he may not be able to learn.

• Learner: As a emerging entrepreneur, huge scope of learning can be done. A new entrepreneur
can read books on starting new businesses or refer to online articles to understand the concept.

• Assemble: An entrepreneur needs to assemble people for specializedwork in the business,

which needs to be handled by a professional. For example, a book keeper, web designer,
marketing expert, etc. This should be done so that an entrepreneur can focus on things he can
manage better than those professionals who have expertise in their respective fields.

• Customer Standards: Don’t accept a customer outside your niche just to keep your business
solvent for a few months. This results in frustration in you, dissatisfaction for the customer and
usually would cost a new entrepreneur more than what he would make.

Trainings:

Since these entrepreneurs are very new, they require a lot of hand holding. There are several
training programs organized to facilitate their operations. This is to cultivate their latent qualities
of entrepreneurship and enlighten them on various aspects necessary for setting up such
businesses.

Challenges:

There is a great example I came across today to explain the challenges faced by a first
generation entrepreneur. It’s the story of Mr.C K Ranganathan, Chairman and Managing
Director for CavinKare. CavinKare started with selling its one product- shampoos, and grew to a
company today selling all skin care, hair care and personal products. He was particularly
handicapped in the beginning with less experience, less money and moderate education when he
started. He realized that the firm could differentiate its products from its competitors only if he
could gain competitive advantage by setting its own rules. He also, realised marketing and
product design and development are key to success in the FMCG market. Therefore, he decided
to outsource the manufacturing part, a strategy which is still followed. To ensure, the quality of
production is not hampered, strict quality assurance programmes were set and put in use.
Supplies were given the motivation to get paid before their due date. One most important thing is
he could overcome his handicap by his strong will to succeed.

Contributions They Can Make:

• Develop new markets: First Generation Entrepreneurs can use the modern concept of marketing
by using an innovative business plan. They can create customers and buyers by satisfying their
demands. They can also compete fiercely by standing against those businesses who follow the
traditional business norms.

• Creates employment: Every time a business opens, it has more employment opportunities.
Factories, industries, agricultural enterprises can absorb huge amount of labour. Having more
people employed would lead to more production. With the growth in production it will, in turn,
lead to more employment again.

• Introduction to new technology: Innovation is an important aspect of a business. With

innovation new and improved ideas develop, which leads to invention of new technology. The
new enterprises also enter with diverse ideas to capture some amount of market share.

• Discovers new sources: These new entities also develop different network for material supply
in comparison to established entrepreneurs, because they have their own traditional sources of
supplier. First generation entrepreneurs develop new sources to enjoy comparative advantage.

Summing up, success for a first generation entrepreneur is driven by his own belief and he is the
master of his own fate. He needs to seek out opportunities and go ahead fearlessly.

Top woman Entrepreneurs in India

New Delhi: Gone are the days when women were considered no match for all powerful men in
this world.

The male dominated world was always reluctant to even acknowledge the fact that women were
as good as men on parameters of hard work, intelligence quotient (IQ) and leadership traits.

The new generation women across the world have overcome all negative notions and have
proved themselves beyond doubt in all spheres of life including the most intricate and
cumbersome world of entrepreneurship.

Yes, there is a section among women who believe in short-cuts but at the same time there is no
dearth of women who are confident ,believe in themselves and have enormous fire in their bellies
to take on the best in the business and beat them at their own game.

India too has its own pool of such bold and fearless women who have made a mark for
themselves both within the country as well as overseas.

Their relentless zeal, incessant quench for success and willingness to walk the extra mile have
broken all myths about their inborn limitations that were supposed to be major roadblocks on
their success expressways.

Let’s meet 15 such Indian women who can be easily termed as role models for every Indian-
both males and females:

1. Indra Nooyi

Current position: CFO, Pepsico

Indra Nooyi,56, is the current chairman and CFO of the second largest food and beverage
business, PepsiCo.

Born in Chennai, Indra did her Bachelor’s in Science from Madras Christian College in 1974 and
a Post Graduate Diploma in Management (MBA) from Indian Institute of Management, Calcutta
in 1976.

Beginning her career in India, Nooyi held product manager positions at Johnson & Johnson and
textile firm Mettur Beardsell. Nooyi joined PepsiCo in 1994 and was named president and CFO
in 2001.

She has been conferred with prestigious Padma Bhushan for her business achievements and
being an inspiration to India’s corporate leadership.

2. Naina Lal Kidwai

Current position: Group General Manager & Country Head – HSBC,India

Naina Lal Kidwai,55, is presently the Group General Manager and Country Head of HSBC
India.

Naina has a Bachelor's degree in Economics from Delhi university and an MBA from Harvard
Business school. In fact, Kidwai was the first Indian woman to graduate from Harvard Business
School.

She started her career with ANZ Grindlays . Presently, she is also serving as a non-executive
director on the board of Nestle SA. Kidwai is also global advisor at Harvard Business school.

Indian government conferred Padma Shri award on Naina for her contributions in the field of
Trade and Industry.
3. Kiran Mazumdar Shaw

Current position: CMD, Biocon

Kiran,59, is the founder Chairman and Managing Director (CMD) of Biocon Limited.

Born in Bangalore, Shaw completed her Bachelors in Zoology from Mount Carmel College,
Bangalore University. She later did her post-graduation in Malting and Brewing from Ballarat
College, Melbourne University.

She worked as a trainee brewer in Carlton and United Breweries, Melbourne and as a trainee
maltster at Barrett Brothers and Burston, Australia.

She started Biocon in 1978 and spearheaded its evolution from an industrial enzymes
manufacturing company to a fully integrated bio-pharmaceutical company.

Today Biocon under Shaw’s leadership has established itself as a leading player in biomedicine
research with a focus on diabetes and oncology.

Kiran is also a member of the board of governors of the prestigious Indian School of Business
and Indian Institute of Technology Hyderabad.

Kiran received the prestigious Padma Shri (1989) and the Padma Bhushan (2005) from the
government of India.
4. Chanda Kochar

Current position: MD & CEO – ICICI Bank

Chanda Kochar, 51, is currently the MD & CEO of india’s largest private bank ICICI Bank.

Rajasthan born chanda got Masters Degree in Management Studies from Jamnalal Bajaj Institute
of Management Studies, Mumbai. She received the Wockhardt Gold Medal for Excellence in
Management Studies as well as the J. N. Bose Gold Medal in Cost Accountancy.
Chanda Kochhar is married to Deepak Kochhar, a wind energy entrepreneur and her Business
schoolmate.
5. Indu Jain

Designation – Chairperson (former), Times Group

Indu Jain,76, used to be the chairperson of India’s largest and most powerful media house – The
Times Group.

A strong votary of women’s rights and women entrepreneurship, Indu contributed immensely to
the growth of Times group. Now, her two sons Samir and Vineet are running the company.

Indu Jain is also founder President of the Ladies wing of FICCI (FLO).

Indu is also the Chairperson of the Bharatiya Jnanpith Trust, which awards India's most
prestigious and highest literary award, the Jnanpith award.

She addressed the United Nations in 2000 at the Millennium World Peace Summit of Religious
and Spiritual Leaders, a speech in which she stressed the need for oneness among faiths and went
on to chair a special session of the conference.
6. Simone Tata

Current position: Chairperson (Former), Lakme Chairperson (Present),Trent Limited

French by birth and educated in Switzerland, Simone is wife of Naval Homey Jahangir Tata and
step mother to Ratan Tata. She is better known as ‘Cosmetic Czarina of India’.

She has the distinction of changing a small subsidiary of Tata Oil Mills into the largest cosmetic
brand in India – Lakme , that became synonymous with indigenous Indian cosmetics.

In 1996 Tata sold off Lakmé to Hindustan Lever Limited (HLL), and created Trent from the
money it made through the sale. Presently, Simone is the chairperson of Trent Limited.
7. Neelam Dhawan

Current position: MD, HP-India

A woman with ‘never-say-die’ spirit, Neelam Dhawan is presently the Managing Director of
Hewlett-Packard (HP), India.

Neelam is an iconic figure in Indian IT industry . She is an inspiration for women working in IT
sector. She dared to enter the IT world in early 1980s when there were just a handful of women
in this industry.

At the start of her career she yearned to be a part of major players in the FMCG space such as
Asian Paints and Hindustan Lever.
Unfortunately, these organizations did not want a woman to be a part of their marketing and
sales efforts and hence she was rejected at the time.

But a determined Neelam refused to give up and fought back with laurels galore.

Before joining HP, India as Managing Director (MD) , Neelam was Managing Director (MD) of
Microsoft, India.

She had successful and rewarding stints with other leading players like IBM and HCL.
8. Sulajja Firodia Motwani

Current position: JMD – Kinetic Motors

Motwani is the Joint Managing Director of Kinetic Motors.

Sulajja has single-handedly designed and developed marketing strategies to spearhead the
company’s growth forward. Sulajja worked in a California-based Investment Company before
coming to India to join her grandfather's business.

Sulajia’s good looks has been recognized by India Today group which named her the ‘Face of
the Millennium’ and she has been selected as the ‘Global Leader of Tomorrow’ by the World
Economic Forum.
9. Priya Paul

Current position: Chairperson, Apeejay Park Hotels

Priya joined the family business at the age of 22 and worked under her father as Marketing
Manager at the Park Hotel, Delhi.

After the death of Surrendra Paul, she succeeded him in 1990 as the Chairperson of the
Hospitality Division of the Apeejay Surendra Group.

Her contribution to the hospitality industry has got recognition from the government of India
which conferred on her Padma Sri award in 2012.
10. Mallika Srinivasan

Current position: Director, TAFE (Tractor and Farm Equipment)

Mallika has an MBA from Wharton School of Business, Pennsylvania.

She joined TAFE in 1986 and has since been responsible for accelerating turnover from 85
crores to 2900 crores within a span of two decades.

Her innovative business ideas and excellent leadership qualities have won her laurels from every
quarter.
She was awarded ‘Businesswoman of the year 2006’ award by ET.

Princeton Creative Research has developed an excellent criteria checklist for evaluating ideas
that is particularly well-suited to the entrepreneur.

Have you considered all the advantages or benefits of the idea? Is there a real need for it?
Have you pinpointed the exact problems or difficulties your idea is expected to solve?
Is your idea an original, new concept, or is it a new combination or adaptation?
What immediate or short-range gains or results can be anticipated? Are the projected returns
adequate? Are the risk factors acceptable?
What long-range benefits can be anticipated?
Have you checked the idea for faults or limitations?
Are there any problems the idea might create? What are the changes involved?
How simple or complex will the idea's execution or implementation be?
Could you work out several variations of the idea? Could you offer alternative ideas?
Does your idea have a natural sales appeal? Is the market ready for it? Can customers afford
it? Will they buy it? Is there a timing factor?
What, if anything, is your competition doing in this area? Can your company be
competitive?
Have you considered the possibility of user resistance or difficulties?
Does your idea fill a real need, or does the need have to be created through promotional and
advertising efforts?
How soon could the idea be put into operation?

As you can see by the examples mentioned above, there are many methods available with which
to evaluate your idea. You should pick and choose the criteria that best suit your needs,
depending on the type of company and/or the type of product you seek to evaluate.

Step 1 – Idea Conception and Evaluation

10 Steps to Bring a Product to Market

Congratulations! You have come up with an idea for a great new product. But how do you know
if it is worth pursuing? In this step, you will do a quick check to see if you should develop your
idea.
Preliminary Patent Search

You can do a preliminary patent search on your own for free. Patent attorneys charge hundreds of
dollars for this service, and if you do continue to develop your idea you will eventually want a
professional patent search. But for now, you only want to see if your idea is worth pursuing and
you can use free search engines like Google Patent Search or the United States Patent and
Trademark Office’s Patent Database.

Search for patents similar to your idea. Ideally, you won’t find any patent remotely similar to your
idea, but you may find a patent very similar to your idea. This does not necessarily mean you can’t
pursue your idea; it does mean you probably can’t get a very strong patent.

Evaluate If Your Product is Worth Pursuing

There are basically four things you need to weigh to determine if your product is worth pursuing.

1. Is your idea feasible to create based upon your abilities?

Most, if not all, inventors get some kind of marketing or technical help from professionals,
but your product still needs to be reasonably within your grasp. Don’t let this intimidate
you too much, but if you believe that you can do most of the work associated with your
invention then you are in good shape. Just remember that even though most inventors do
get help, you still need to do most of the work by yourself.
2. Can it be produced profitably?
You will not be able to know your exact costs, but consider the materials you want to use,
the complexity of construction and the type of packaging you will need. If you think your
costs will be pretty high and you will be competing with relatively low-cost products, your
idea will probably not be worth pursuing. There are exceptions to this rule, like if your
product is significantly better than competition or you are targeting high-end stores and
consumers, but usually this rule holds true.
 3. Is there significant competition?
A product is always easier to introduce if there is either very little or no competition. More
competition generally means lower profits and tougher sales.
4. Does your product make people say, “Wow”?
If people are amazed when they hear about your product, then you should pursue your idea. I
call this the “wow” factor and this can make up for deficiencies in any of the three areas
above. This is perhaps the most important part of evaluating your idea because the “wow”
factor is often the biggest contributor to inventors’ success.

Step 2 – Determine Your Target Market

10 Steps to Bring a Product to Market

Develop a specific group of people who are your target customers. You want this to be the group
most likely to buy your product. For instance, if you have a new kind of fly fishing pole, which is
expensive, your target market could be wealthy fly fishermen. You might want further narrow this
market to fishermen who fish for a certain fish in a certain kind of creek. Some people want to
avoid a narrow market because they think they will sell fewer products, but usually the opposite is
true. With a narrow target market you can more effectively market your idea and can have more
effective market research. Once you have a target market, you want to then target a type of
distribution channel and find the corresponding trade shows, magazines and associations to be a
part of.

Targeting the right market at this point is crucial since all of the rest of your steps will be geared
toward creating the perfect product, packaging, marketing, image, etc. for that target market.

Getting Involved With Your Target Market

Once you have chosen your target market, you need to get involved with that market. Subscribe to
magazines, industry newsletters, read blogs, go to trade shows and anything else you can think of
to immerse yourself in this market. You must thoroughly understand your market and be on top of
any changes.
Step 3 – Do Meaningful Market Research
10 Steps to Bring a Product to Market
Market Research

You need to conduct meaningful market research for your idea within your target market. Your
results need to show how people compare your product to others, what price they think is fair,
what product features they like, which they don’t and what features they think you should add to
your idea. How you do this can vary tremendously but common forms of research are focus
groups, surveys and interviews.

Create Something People Can Evaluate

Either create a brochure or a prototype of your product so people have something they can
objectively evaluate.

If you create a brochure, you may need to hire a graphic designer or someone who can do technical
drawings. You must make sure the brochure is attractively designed. People will be using your
brochure to judge the merits of your product and if your brochure is low quality, people will
probably think your product is low quality and you will not get the objective response required for
meaningful market research.

Building a prototype is also an option. Again, if your prototype will be made out of plywood and
duct tape, people probably won’t respond positively to your product. You may need to hire a
prototype designer if you cannot create an attractive enough prototype.

Generally, creating a brochure is easier and more affordable and many inventors choose that route.
For help designing a brochure, contact us at [email protected]. Prices will vary
depending on your needs.
Get an Estimate on How Much Your Product Will Cost to Manufacture

Ask an engineer or an industry insider if they can give you a rough estimate on how much your
product will cost to manufacture. You can also look at products made of similar materials with a
similar level of complexity and see what they sell for. Usually a product sells at four times its
manufacturing cost. So if the product costs $19.95, the manufacturing costs are probably around
$5.00.

Using your estimated manufacturing cost, estimate your retail price by multiplying your
manufacturing costs by four.

Conduct Your Market Research

Create surveys, questionnaires or study groups to compare your product to other existing products.
If you are using a brochure, make sure you obtain brochures of competing products so you are not
comparing apples to oranges.

You do not want participants to know which product is yours since they will then soften any
criticism to not hurt your feelings. You want them to objectively rank each product in the order in
which they value each product, or in the order in which they are most likely to buy. You also want
them to list strengths and weaknesses of each product.

After doing this, you should have an idea of what customers are willing to pay for your product.
For instance, if they rank your product between a product that costs $24.95 and a product that costs
$20.95, you can charge around $22.95 for your product. If this price is too low based upon your
estimated manufacturing costs, you need to revise your product, either by adding value or by
lowering your manufacturing costs.

Also after conducting this market research, you should have at least a few ideas on how to improve
your product. Make these changes and repeat the market research until you are satisfied with your
results. You will want your product to consistently be ranked as one of the participants’ top two
choices.

Remember that whenever you change your product’s design, you will want to re-estimate your
manufacturing costs.

Step 4 – Make a Looks-Like, Acts-Like Prototype

10 Steps to Bring a Product to Market

Now it is time to make a looks-like, acts-like prototype. You will need this to verify if your idea
works the way you think it will. Your prototype doesn’t necessarily need to be made from all the
same materials as your final product will be, but it needs to be a close approximation of your final
product to prove to you, investors and potential partners that your idea does work.

Some inventors get all the way through the product development process, “perfect” their product,
invest in a patent, but when they finally try to build the product, it doesn’t work. Then they make
changes in their product to make it work, but by doing so, sometimes their own product changes
invalidate their patent protection. That is why it is so important to make a working prototype before
you invest in a patent.

Building the Prototype

Depending on your product, you may or may not be able to build the prototype on your own.
Remember that your prototype doesn’t need to be made of all the same materials as your final
product; it just needs to work and look like your final product will.

If you cannot build the prototype on your own, you may need to hire a professional prototype
builder, an engineer or just a capable person.
Paying for Your Prototype

Building a prototype can be the first expensive step in your product development (depending on
the complexity of your product). If you don’t have a fair amount of savings, or the opportunity to
take a small loan, you may need some investments to pay for your prototype.

Family and friends are often the best place to start for some small investments. Some of them may
already know about your product, maybe have been encouraging you, and now may be the time to
ask for some investments. You want to be upfront about the risk of investing in a new product,
especially if you hope to keep good relations with your family and friends. Some may want to
invest a lot of money into your product, but we don’t believe this is a good idea unless they want
to become partners in your business. Investing in new products is risky and you don’t want to take
advantage of family and friends who are eager to help.

If you need to hire a professional to build your prototype, you may need to take on your first serious
investor. Once you start taking on investors beyond your family and friends, you will need to talk
to a business lawyer to make sure you aren’t breaking any laws with your investors.

Prototypes

Prototype design and construction cost vary depending on the complexity of the product.
Generally, the consultation should provide us with enough information to allow the preparation of
a fixed price quote for the design and construction of an invention prototype. Most prototypes cost
between $1,500 and $15,000.

Virtual Prototypes

Virtual Prototypes are very useful for pitching an invention to a potential licensee at a cost that is
much lower than that of a physical prototype. A Virtual Prototype is a series of photo realistic
images of an invention that can be developed by designing the invention in three dimensions on
the computer. The results can be viewed from different angles, and illuminated to create
professional virtual photographs of the invention. The invention can also be an Animated Virtual
Prototype and shown as a video. The price for most virtual prototypes is usually between $1,500
and $3,500 depending on complexity.

Step 5 – Intellectual Property Protection

10 Steps to Bring a Product to Market

Now that you have your looks-like, acts-like prototype, you know how your final product will
work and it is time to take a serious look at your patent options.

Professional Patent Search

Although you have done a preliminary patent search on your own, you will want to have a patent
attorney or agent conduct a patent search for you. This will go much further in-depth than your
patent search and some of the work (for instance, exploring prior art) will be required for your
patent application.

Decide on your Patent Strategy

Once your patent search is completed, you will need to use the results to decide your patent
strategy. There are many possible strategies, for instance: trade secret, design patent, utility patent,
provisional patent, a series of weak patents or a prolonged patent pending strategy.

You will need to work with your patent attorney or patent agent on which strategy will work for
you. Many inventors start with a provisional patent, which is easy to file on your own, but a
provisional patent won’t work in every circumstance, which is why you want to consult a
professional.

Other Intellectual Property Protection Options

There are other forms of intellectual property protection options besides patents, although only a
patent will protect your product. Trademarks are often used by inventors to protect their company
or product name and logo. You can register your trademark at the US Patent and Trademark
Office or just put “TM” after whatever you want to trademark. There are certain advantages to
registering your trademark and you can find out about that at the USPTO website.

Paying for Patents

Patents can be very expensive and if you haven’t needed to take on investors yet, you probably
will need to now. Really, even if you don’t need to take on investors now, you probably should.
You don’t want to wait to approach investors until you run out of money because that will make
you look like a poor planner. Also, if you have connected with industry insiders or business
professionals for advice, this is a good time to approach them about investing. They will
understand this is an expensive, but necessary, step and as soon as they invest, they are no longer
just well-wishers giving advice, instead they have a stake in your success and will be willing to
use their contacts to advance your product.

As mentioned in Step 4, you will need to get in touch with a business lawyer to make sure you
aren’t breaking any laws when taking investments

Step 6 – Choose your Business Model

10 Steps to Bring a Product to Market

Now that you have gotten this far, you need to choose how you are going to sell your product, how
you are going to profit from these sales, how your business will be organized — in short, you need
to choose your business model.

A lot of things go into a business model (see Business Models Made Easy, Successful Business
Models, and The Risk-Free Entrepreneur for a detailed look into building a winning business
model), but most inventors choose one of three basic business models: being outsource
entrepreneur, licensing or starting their own company.
All three have pros and cons and you will have to decide which model is best for you and your
product, based on your own skills and the specific characteristics of your product. To learn more
about each model, see below.

Outsource Entrepreneur

An outsource entrepreneur uses outsourcing to quickly bring his or her product to market with low
risk and low investment. There are essentially three aspects to bringing a product to market:
research and development; manufacturing; and marketing. As the inventor, you perform the task
of research and development (inventing and developing the idea) and outsource the manufacturing
and marketing to investing partners. The investing partners will provide further development and
pay for many of the startup costs. In return they will receive more profits than contracted work and
will have some control of the idea.

This is often the fastest way to bring a product to market, is low risk and allows you to move onto
new ideas quickly since the other partners will continue to manufacture and market your idea
without excessive involvement on your part. This is not for everyone and will require you to have
strong deal-making skills, but the low-risk and low-investment aspect makes this appealing for
most inventors, who are often strapped for cash.

Licensing

Licensing is when a company takes over your new product idea and pays you a royalty of the sales
from your idea. The licensee can be a manufacturer, marketer or a product development company.
Since licensees take on all the risk of a product, they are cautious about what products they will
license. Most companies will only license an idea if they are fairly certain it will be successful so
it is up to you to convince them.

While the earning potential is lower than both the outsource entrepreneurial approach and starting
your own company, many inventors choose this strategy because once you license the idea you
have no more responsibility to the project.
Similar to licensing are private label agreements. Under a private label agreement, you would need
to manufacture your product and then another company would sell it as if it were their own product.

Starting Your Own Company

Starting your own company can offer the biggest returns on your idea, but also can be the biggest
loss. This business model will take substantial investment and time and will offer the slowest rate
of growth. But if you succeed, the profits are all yours.

In the following steps, we will assume you will contract the manufacturing process and hire sales
people or use an established distribution channel, which is not the route everyone takes. With a
small target market, some inventors can manufacture and market the product completely on their
own, and even earn a substantial profit. Before you start this process consider what skills you have
and how much time you are willing to spend on this business, you may need to take on help or
partners right away to get started.

Choice of Technology

A Preservation Institute White Paper Choice of Technology From the beginning of the industrial
revolution, the rule was to adopt as much new technology as possible as quickly as possible. A
few decades ago, we began to control the most deadly technologies. For example, after a killer
smog caused thousands of deaths in London in 1952 and 1953, the city of London passed laws to
control air pollution, and other countries eventually followed. When DDT threatened to cause
extinction of eagles, peregrine falcons, cormorants, and many other species of bird, it was banned
internationally. If these limits on deadly technologies have made our lives better, then broader
limits on destructive technologies should also make our lives better. We will look at four common-
sense criteria for choosing technologies: utility, environment, autonomy and quality. Because we
have used technology indiscriminately for so long, it will be easy to explain what these criteria
mean by finding examples of technologies that violate them – technologies that are either useless
or destructive.
Utility
The first criterion is utility. Is the technology actually useful? The electric can opener is a small
example that clarifies what this criterion means. Unless you have arthritis or some other
debilitating disease, the old-fashioned wall-mounted, handcranked can opener is just as easy to use
as an electric can opener. In fact, the electric can opener is a nuisance because it takes up shelf
space, and one manufacturer marketed a wallmounted electric can opener which it said would free
consumers from this problem – a problem they never would have had if they had stuck with their
old hand-cranked can openers. Though it is more expensive and has no more utility (maybe even
less utility), the electric can opener has replaced the hand-cranked can opener almost completely
in American kitchens.
This is one small example of the American fascination with new consumer technology, which
helps fuel our shop-till-you-drop economy by convincing people to buy new gadgets, whether or
not they are – strictly speaking – useful.
Rather than giving more small examples, let’s go straight to the biggest example of how we violate
the criterion of utility, our overuse of the automobile and the complex of sprawl and freeways that
goes with it. Post-war American city planners designed new development around the automobile.
In the post-war suburbs that sprouted around all our cities, densities were very low, so automobiles
could be the sole form of transportation without causing congestion. Housing was separated from
other land uses, to prevent neighborhoods from being invaded by automobiles. Shopping was
surrounded by parking lots. Freeways and major streets were designed purely to maximize the
flow of automobile traffic. The low densities could not support good public transportation, and the
parking lots, single-use developments, and high-speed roads made walking either Utility: Is the
technology actually useful? unpleasant or physically impossible. In these neighborhoods, people
drive every time they leave their houses. This auto-oriented sprawl is very expensive: Housing and
transportation account for over 50% of Americans’ consumption expenditures. Yet these sprawl
suburbs are no more livable than the old street-car suburbs built early in the twentieth century,
where people could walk to local shopping and to public transportation. In many ways, they are
less livable: For example, parents have to waste time chauffeuring their children around, traffic is
often nerve racking, and you live with the everyday ugliness of freeways and strip malls. The New
Urbanists have shown that neighborhoods are more livable when they are designed like the old
street-car suburbs, so they can support a balanced transportation system that includes public transit
and walking as well as the automobile. But, because of post-war America’s fascination with
technology, we built freeway-oriented sprawl for many decades, even though it has no more utility
(maybe even less utility) than neighborhood design that supports the low-tech form of
transportation called walking.
Environment
The second criterion is environmental soundness, using the word environment in the broadest
sense. Does the technology create costs for unwilling third parties? A small example that clarifies
what this criterion means is the remote control automobile lock that beeps the horn to reassure the
user that the door is successfully locked, which has become ubiquitous. Using remote control
instead of a key is a minor convenience for the consumer, and the beeping horn is a minor nuisance
for everyone else. We could have the convenience without the nuisance, if cars flashed their lights
to show that the door was locked instead of beeping their horns. Currently we just think about cost
and convenience to the consumer, not about the nuisance to third parties. We would all be better
off if we thought about total cost, including environmental costs. It is easy to come up with bigger
examples of the same principle. Off-road vehicles, jet skis, and other “thrill craft” are usually very
noisy. They are a minor form of amusement for the consumer and a significant nuisance for every
one nearby – particularly for people who took a trip out of the city in to find some peace and quiet.
The off road vehicles also tear up the land, and the jet skis dump oil in the water. The biggest
example of this principle is our overuse of fossil fuels, which has released so much carbon dioxide
into the atmosphere that global warming will impose huge costs on future generations. Most of
America’s electricity is generated by burning coal, which emits twice as much carbon dioxide as
natural gas. Solar electric power costs about twice as much as power generated using fossil-fuels,
but it emits no carbon dioxide. If we took into account all costs, including future environmental
costs, we would shift to solar power, even at its current price; after it became widespread, its price
would go down.
Autonomy
A third criterion is autonomy. Does the technology make people passive and powerless, or does
it help them to do more for themselves? Environment: Does the technology create costs for
unwilling third parties? For example, television reduces autonomy by turning people into passive
consumers of entertainment. Microcomputers can increase autonomy by letting people join on-line
discussion groups, produce publications, record and produce music, and do other productive
activities on their own. We cannot always follow this criterion. For example, small-scale
production would increase autonomy, but large-scale factory production is usually so much more
efficient that it is economically necessary, even though it reduces autonomy. Since the 1970s, the
appropriate technology movement has brought the criterion of autonomy to the world’s attention
by developed small-scale technologies that allow independent local production. These
technologies are useful in developing nations where there is little capital and very low wages, but
it is not realistic to expect the developed nations to abandon mass production. In the United States,
the ideal of appropriate technology is useful as a reminder to avoid technologies that make us
passive and powerless. For example, we should control our addiction to the mass media and instead
start using our time more constructively. Likewise, we should stop thinking of ourselves as passive
consumers of health care and instead start eating well and exercising to improve our own health.
Quality
The fourth criterion is difficult to name, but it might be best to call it quality. Technology lets us
do things in ways that are cheaper, quicker, or easier – but that are not the real thing. Is the
technology an artificial substitute that is drastically inferior to the real thing? There are many small
examples from the modern food industry. During much of the twentieth century, the big bread
manufacturers promoted white bread, because its long shelf life allows large-scale production and
distribution. It has a long shelf life because it has so little nutritional value that it cannot support
the growth of most microorganisms. The bread manufacturers add artificial vitamins and minerals,
but these make up for only a small fraction of what they remove. For example, whole wheat bread
naturally has over twenty B vitamins; white bread has a few B vitamins added, which are cheap to
manufacture. Whole wheat bread is high in fiber; white bread does nothing to make up for the lost
fiber. The artificial nutrients that are added are not a real substitute for the natural nutrients that
are lost. Likewise, most packaged foods include hydrogenated oils. Hydrogenation increases shelf
life by making the oil less likely to become rancid, so it works well for large-scale production and
distribution. But recent research has shown that these trans fats increase the threat of heart disease
so dramatically that some people say they should be banned. They are not a real substitute for
natural oils. A bigger example is our use of drugs to create an artificial substitute for good health.
Many Americans are overweight because of bad diet and lack of exercise, and this puts them at
risk of heart disease, diabetes, and other illnesses. Our solution is to prescribe statins, which reduce
the risk of heart disease; the standards keep changing so the population that doctors recommend
statins to increases each year. Doctors say that we should change our lifestyle in addition to taking
these drugs, but obesity rates keep going up, so it is clear that many Americans take drugs instead
of changing lifestyle. Yet these drugs only deal with high cholesterol levels, and they leave us
overweight, sedentary, and far from optimum health. They are not a real substitute for living
healthier lives. Autonomy: Does the technology make people passive and powerless, or does it
help them to do more for themselves? Even worse, we have begun to use psychiatric drugs to
create an artificial imitation of happiness. Psychiatric drugs can be useful in the case of real mental
illnesses, but they are grossly over-prescribed in America. The United States has 90% of the
world’s cases of ADHD, and it is clear that we prescribe Ritalin to many of these children to adjust
them to preschools or to schools that are not suited to their temperaments. Likewise, we prescribe
Prozac to adults to help them cope with overwork and stress. It is easy to take a drug that makes
you feel good, but it is not a real substitute for changing your life for the better. We cannot always
follow this criterion either. For example, if we had all our clothing custom made by tailors, it would
fit a bit better than our usual mass-produced clothing, but it would be much more expensive. The
quality of mass-produced clothing is adequate, and it is not worth paying the extra cost for custom
tailored clothing. This criterion is most important when the high-tech product is completely ersatz
and is not a substitute at all for the low-tech product that it replaces – as taking statins to lower
cholesterol is not a substitute for eating well and exercising, and as taking Prozac is not a substitute
for living a satisfying life.
With and Without Choice
Some choices of technology must be required by law, such as limits on off-road vehicles, and
others should be voluntary, such as reduction of the time we spend watching television. Both
political and personal choice of technology will come when we finally realize how destructive our
failure to choose technologies has been. Because we have failed choose technologies based on
utility, we spend so much money on high-tech toys and on automobile-centered neighborhoods
that we have to work long hours and do not have time for our families and our own interests.
America has longer work hours than any other industrial nation, longer work hours than had three
or four decades ago. We should use technologies that save labor, but avoid the technological
consumerism that makes us waste our time in useless getting and spending. Because we have failed
to choose technologies based on full environmental cost, our quality of life has declined. The group
Redefining Progress has compiled the Genuine Progress index, which corrects the Gross Domestic
Product for environmental costs, and it has found that both the GDP and our genuine well being
increased through the 1960s, but that since the 1970s, our genuine well being has declined, even
though the GDP continued to grow as quickly as ever. In the coming century, global warming may
cause a drastic decline in our well being. Because we have failed to choose technologies based on
autonomy and quality, we spend most of our spare time as passive consumers of entertainment,
stultified by the mass media. We do not even take the initiative needed to promote our own health;
instead we consume drugs. If we began to choose technology based on these four criteria, we
would consume less and have more free time for our families and our own interests. We would get
rid of environmental nuisances that degrade our quality of life, and of environmental threats that
endanger our future. We would have the free time and the initiative needed to promote our own
health and happiness. We have used technology indiscriminately for so long that our lives are
cluttered with useless and destructive technologies. We would be much better off if we got them
out of our way. Quality: Is the technology an artificial substitute that is drastically inferior to the
real thing
 Unit III

Project Formulation and Implementation

Need for project formulation

• Selection of appropriate technology

• Influence of External Economics

• Dearth of Technically Qualified Personnel

• Resource mobilisation

• Knowledge about Government Regulations

Significance of a project formulation

• Project formulation is the best passport for obtaining the required assistance from financial
insitutions.

• it will also be of great assistance for obtaining necessary Government clearences and in
meeting the hurdles of procedure formalities.

• it will pinpoint the matters for which government sanctions have to be obtained.

• It will provide an independent assessment of the feasibility of obtaining the sanctions based
on the existing government policies.

TAXONOMY OF PROJECTS

◼ Based on the type of activity

◼ Based on the location of the project

◼ Based on the completion time

◼ Based on ownership

◼ Based on size

◼ Based on need

TYPES OF PROJECTS

◼ Construction projects
◼ Research projects

◼ Reengineering projects

◼ Procurement projects

◼ Business implementation projects

◼ Miscellaneous types

Elements of Project Formulation

• Feasibility analysis

• Techno-economic analysis

• Project design and network analysis

• Input analysis

• Financial analysis

• Social cost benefit analysis

• Project appraisal

Project selection

• Economic size

• Status of industry or scope

• Raw material availability

• Cost of production

• Capital cost

• Utility requirements

• Infrastructure facilities needed

• Profitability

• government policy

Planning commission guidelines

• General information
• Preliminary analysis of alternatives

• Project description

• Marketing plan

• Capital requirements and costs

• Operating requirements and costs

• Financial analysis

• Economic analysis

• RESPONSIBILITIES OF A PROJECT MANAGER

• To plan thoroughly all aspects of the project

• To control the organization of manpower needed by the project.

• To control the basic technical definition of the project.

• To lead the people and organizations assigned to the project at any given point in time.

• To monitor the performance, costs and efficiency of all elements of the project.

• To complete the project on schedule and within costs.

• To plan thoroughly all aspects of the project, soliciting the active involvement of all the
areas involved.

• To control the organization of man power.

• To control the basic technical definition of the project

• To lead the people and organisation assigned to the project at any point in time.

• To monitor the performance, costs and efficiency of all elements of the project and the
project as a whole.

• To complete the project on schedule and within costs .

8 Stages involved in the Formulation of a Good Business Plan!

• Normally, micro and small-scale enterprises do not include sophisticated techniques
which are used for preparing project reports of large-scale enterprises. Within the small-
scale enterprises too, all the information may not be homogeneous for all units.
• In fact, what and how much information will be given in the project report depends upon
the size of the unit as well as nature of the production. A general set of information given
in any project report is listed by Vinod Gupta (1999) in his study on “Formulation of a
Project Report”. We are reproducing it here for your information and knowledge.
• Project formulation divides the process of project development into eight distinct and
sequential stages.

• These stages are:

• 1. General Information.

• 2. Project Description.

• 3. Market Potential.

• 4. Capital Costs and Sources of Finance.

• 5. Assessment of Working Capital Requirements.

• 6. Other Financial Aspects.

• 7. Economic and Social Variables.

• 8. Project Implementation.

• The nature of information to be collected under each one of these stages has been
given below:
• 1. General Information:
• The information of general nature given in the project report includes the following:
• Bio-data of Promoter:
• Name and address of entrepreneur; the qualifications, experience and other capabilities of
the entrepreneur; if these are partners, state these characteristics of all the partners
individually.

• Industry Profile:
• A reference of analysis of industry to which the project belongs, e.g., past performance,
present status, its organisation, its problems, etc.

• Constitution and Organisation:

• The constitution and organisational structure of the enterprise, in case of partnership firm,
its registration with the Registrar of Firms; application for getting Registration Certificate
from the Directorate of Industries/District Industry Centre, etc.

• Product Details:
• Product utility, product range; product design; advantages to be offered by the product
over its substitutes, if any.

• 2. Project Description:
• A brief description of the project covering the following aspects is given in the project
report.

• Site:
• Location of enterprise; owned or leasehold land; industrial area; No Objection Certificate
(NOC) from the Municipal Authorities if the enterprise location falls in the residential
area.

• Physical Infrastructure:
• Availability of the following items of infrastructure should be mentioned in the
project report:
• (i) Raw Material:
• Requirement of raw material, whether inland or imported, sources of raw material supply.
• (ii) Skilled Labour:
• Availability of skilled labour in the area, arrangements for training labourers in various
skills.

• Utilities:
• These include:
• (i) Power:
• Requirement for power, load sanctioned availability of power.

• (ii) Fuel:
• Requirement for fuel items such as coal, coke, oil or gas, state of their availability.

• (iii) Water:
• The sources and quality of water required should be clearly stated in the project report.

• Pollution Control:
• The aspects like scope of dumps, sewage system and sewage treatment plant should be
clearly stated in case of industries producing emissions.

• Communication System:
• Availability of communication facilities, e.g., telephone, telexes etc. should be stated in
the project report.

• Transport Facilities:
• Requirements for transport, mode of transport, potential means of transport, distances to
be covered, bottlenecks etc., should be stated in the business plan.

• Other Common Facilities:

• Availability of common facilities like machine shops, welding shops and electrical repair
shops etc. should be stated in the report.
• Production Process:
• A mention should be made for process involved in production and period of conversion
from raw material into finished goods.

• Machinery and Equipment:

• A complete list of items of machinery and equipment’s required indicating their size,
type, cost and sources of their supply should be enclosed with the project report.

• Capacity of the Plant:

• The installed licensed capacity of the plant along with the shifts should also be mentioned
in the project report.

• Technology Selected:
• The selection of technology, arrangements made for acquiring it should be mentioned in
the business plan.

• Research and Development:

• A mention should be made in the project report regarding proposed research and
development activities to be undertaken in future.

• 3. Market Potential:
• While preparing a project report, the following aspects relating to market potential
of the product should be stated in the report:
• (i) Demand and Supply Position:
• State the total expected demand for the product and present supply position. This should
also be mentioned how much of the gap will be filled up by the proposed unit.

• (ii) Expected Price:

• An expected price of the product to be realised should be mentioned in the project report.

• (iii) Marketing Strategy:

• Arrangements made for selling the product should be clearly stated in the project report.

• (iv) After-Sales Service:

• Depending upon the nature of the product, provisions made for after-sales service should
normally be stated in the project report.

• (v) Transportation:
• Requirement for transportation means indicating whether public transport or
entrepreneur’s own transport should be mentioned in the project report.

• 4. Capital Costs and Sources of Finance:

• An estimate of the various components of capital items like land and buildings, plant and
machinery, installation costs, preliminary expenses, margin for working capital should be
given in the project report. The present probable sources of finance should also be stated
in the project report. The sources should indicate the owner’s funds together with funds
raised from financial institutions and banks.

• 5. Assessment of Working Capital Requirements:

• The requirement for working capital and its sources of supply should be carefully and
clearly mentioned in the business plan or project report. It is always better to prepare
working capital requirements in the prescribed formats designed by limits of requirement.
It will minimise objections from the banker’s side.

• 6. Other Financial Aspects:

• In order to adjudge the profitability of the project to be set up, a projected Profit and Loss
Account indicating likely sales revenue, cost of production, allied cost and profit should
be prepared. A projected Balance Sheet and Cash Flow Statement should also be
prepared to indicate the financial position and requirements at various stages of the
project.
• In addition to above, the Break-Even Analysis should also be presented in the project
report. Break-even point is the level of production/ sales where the industrial enterprise
shall earn neither profit nor incur loss. In fact, it will just break even. Break-even level
indicates the gestation period and the likely moratorium required for repayment of loans.

• Break-even point (BEP) is calculated as follows:

• BEP = F/S-V x 100

• where, F = Fixed Cost

• S = Sales Projected

• V = Variable Costs

• Thus, the break-even point so calculated will indicate at what percentage of sales, the
enterprise will break even i.e., no profit, no loss.

• 7. Economic and Social Variables:

• In view of the social responsibility of business, the abatement costs, i.e., the costs for
controlling the environmental damage should be stated in the project. Arrangements
made for treating the effluents and emissions should also be mentioned in the report.

• Besides, the socio-economic benefits expected to accrue from the project should also be
stated in the report itself.

• Following are the examples of socioeconomic benefits:

• (i) Employment Generation.

• (ii) Import Substitution.

• (iii) Ancillarisation.
• (iv) Exports.
• (v) Local Resource Utilization.
• (vi) Development of the Area.
• 8. Project Implementation:
• Last but no means the least, every entrepreneur should draw an implementation scheme
or a time-table for his project to ensure the timely completion of all activities involved in
setting-up an enterprise. Timely implementation is important because if there is a delay, it
causes, among other things, a project cost overrun.

• In India, delays in project implementation have become a common feature. Delay in

project implementation jeopardizes the financial viability of the project, on the one hand,
and props up the entrepreneur to drop the idea to set-up an enterprise, on the other.
Hence, there is a need to draw up an implementation schedule for the project and then to
adhere to it to complete the project in time.

• Following is a simplified implementation schedule for a small business project:

•
• The above schedule can be broken up into scores of specific tasks involved in setting up
the enterprise. “Project Evaluation and Review Technique (PERT)’ and “Critical Path
 Method (CPM)’ can also be used to get better insights into all activities related to
implementation of the project.

HOW TO START A NEW VENTURE

• Idea generation
• Primary screening or pre-feasibility study
• Project feasibility or detailed feasibility study
• Support study
• Detailed project report (DPR)
• Design or planning
• Implementation or execution
• Termination of project

IDEA GENERATION OR IDENTIFICATION OF INVESTMENT OPPORTUNITIES

◼ Idea generation is the process of grouping logical thoughts based on some factors.

SOURCES OF IDEA GENERATION

 ◼ Performance of existing industry

◼ Examining the inputs and outputs of various industries

◼ Review of imports and exports

◼ Availability of cheap materials & labor locally

◼ Price trend, to find demand – supply gap

◼ Government guidelines

◼ Analysis of economic and social trends

◼ Study of new technological developments

◼ others

PRELIMINARY SCREENING OR PRE-FEASIBILITY STUDY

◼ Preliminary screening is done with a view to avoid unnecessary cost and efforts in
detailed study, if idea is not looking worthwhile in first instance

◼ DEFINITION : Preliminary screening can be defined as a series of steps to know whether

or not a complete detailed feasibility study should be made.

What Is Market Demand Analysis?

Companies use market demand analysis to understand how much consumer demand exists for a
product or service. This analysis helps management determine if the company can successfully
enter a market and generate enough profits to advance its business operations. While several
methods of demand analysis may be used, they usually contain a review of the basic components
of an economic market.

Market Identification
• The first step of market analysis is to define and identify the specific market to target with new
products or services. Companies will use market surveys or consumer feedback to determine
their satisfaction with current products and services. Comments indicating dissatisfaction will
lead businesses to develop new products or services to meet this consumer demand. While
companies will usually identify markets close to their current product line, new industries may
be tested for business expansion possibilities.
 Business Cycle

• Once a potential market is identified, companies will assess what stage of the business
cycle the market is in. Three stages exist in the business cycle: emerging, plateau and
declining. Markets in the emerging stage indicate higher consumer demand and low supply
of current products or services. The plateau stage is the break-even level of the market,
where the supply of goods meets current market demand. Declining stages indicate lagging
consumer demand for the goods or services supplied by businesses.

Product Niche
• Once markets and business cycles are reviewed, companies will develop a product that meets a
specific niche in the market. Products must be differentiated from others in the market so they
meet a specific need of consumer demand, creating higher demand for their product or service.
Many companies will conduct tests in sample markets to determine which of their potential
product styles is most preferred by consumers. Companies will also develop their goods so that
competitors cannot easily duplicate their product.

Growth Potential
• While every market has an initial level of consumer demand, specialized products or goods can
create a sense of usefulness, which will increase demand. Examples of specialized products are
iPods or iPhones, which entered the personal electronics market and increased demand through
their perceived usefulness by consumers. This type of demand quickly increases the demand for
current markets, allowing companies to increase profits through new consumer demand.

Competition
• An important factor of market analysis is determining the number of competitors and their
current market share. Markets in the emerging stage of the business cycle tend to have fewer
competitors, meaning a higher profit margin may be earned by companies. Once a market
becomes saturated with competing companies and products, fewer profits are achieved and
companies will begin to lose money. As markets enter the declining business cycle, companies
will conduct a new market analysis to find more profitable markets.
Market Survey

Market Survey is a technique that is aimed at gathering all possible information (primary data)
by conducting interviews

Steps under Market Survey

Defining the Target Market

Selecting the Sample

Developing the Questionnaire

Training the Surveyors

Recording the Information

Interpreting the Information

Market Descriptions
 ❖ Competition in Market

❖ Study of Market Segments

❖ Price

❖ Methods of Distribution

❖ Sales Promotion

❖ Consumers Interest

❖ Demand Forecasting

NEED FOR DEMAND FORECASTING

All business planning starts with forecasting Capital investment, like procurement of raw
materials and production planning, has to relate to demand forecasting. High volume high
technology mass production systems have further high-lighted the importance of accurate
demand forecasts. Even in a batch type production, any major mismatch between forecast and
manufacture will lead to higher capital tied up in finished products which are slow in selling.
UNCERTAINTIES IN DEMAND FORECASTING

Demand forecasting is the estimate of future demand. As the future is always uncertain,
forecasting cannot be completely fool proof and correct. However, the very process of
forecasting demand in future involves evaluating various forces and factors which influence
demand. This exercise is very rewarding in itself as it enables the personnel to know about
various market forces, currents, cross-currents and under-currents relevant to the demand
behavior.

LEVELS OF DEMAND FORECASTING

Demand forecasting can be at the level of a firm or an industry or at the national or

national or international level:

a) Firm Level 36 Project Formulation and Appraisal If the exercise aims at forecasting demand
of firm' s products locally at state, region or national level, it is a micro-level of demand
forecasting. Sometimes, forecasts are required for company' s products in specific industry or
market segment.

d) Industry Level Such a demand forecasting exercise focuses on an industry as a whole for the
region and/or national level. These forecasts may be undertaken by a group of companies or by
industry/trade associations.

National Level Demand forecasts at national level include parameters like national income,
expenditure, index of industrial and/or agricultural production etc. Estimating aggregate demand
of products at national level facilitates governmental decisions for imports, exports, pricing
policy etc.

International Level

Companies operating in multinational markets would require similar forecasting of demands for
its products, trends in consumption etc at international level Managerial Economists play a
leading role in masterminding these forecasts at firm, industry, national and international levels.
Time horizon of these demand forecasts usually varies from 1 to S years and in rare instances
upto 10 years.

METHODS OF FORECASTING- DEMAND

To facilitate proper and reliable appraisal of investment proposal, we require a reasonably accurate
forecast of demand. Starting with qualitative methods like survey of collective opinions, buyers'
intention, Delphi approach and its variant, a number of quantitative methods are used for compiling
and computing demand forecasts as detailed below:

a) Collective Opinion Survey Sales personnel are closest to the customers and have
an intimate feel of the market. Thus they are most suited to assess consumers
reaction to company's products. Herein each salesperson makes an estimate of the
expected sales in their respective area, territory, state and/or region, These estimates
are collated, reviewed and revised to take into account changes in design/features
of products, changes in selling prices, projected advertising and sales promotion
campaigns and anticipated changes in competitors :marketing policies covering
product, people, price, promotion and place. Opinions of all managers involved at
various levels of sales organisation are also included in the survey.
b) Survey of Customers Intention Another method of demand forecasting is to carry
out a survey of what consumers prefer and intend to buy. If the product is sold to a
few large industrial buyers, survey would involve interviewing them. If it is a
consumer durable product, a sample survey is carried out for questioning a few
representative consumers about what they are planning or intending to buy. It is
neither realistic nor desirable to query all consumers either through direct contact
or through printed questionnaire by mail. These surveys serve useful purpose in
establishing relationships between: • demand and price • • • • • i) ii) iii) iv) v)
demand and income of consumers demand and expenditure on advertisement etc
This method is preferred when bulk of the sales is to institutions and industrial
buyers and only a few of them have to be contacted. Disadvantages are that
customers may not know total requirements; in some cases they are not certain
about quantity to be purchased. Besides during shortages there is a tendency to
inflate their requirements. Survey method is not useful for households -
interviewing them is not only difficult out but also expensive. They are not able to
 give precise idea about their intentions particularly when alternative products are
available in the market.

c) Delphi Method of Demand Forecasting

Delphi method is a group process and aims at achieving a `consensus' of the

members. Herein experts in the field of marketing research and demand forecasting
are engaged in analyzing economic conditions carrying out sample surveys of
market conducting opinion polls Based on the above, demand forecast is worked
out in following steps: Co-ordinator sends out a set of questions in writing to all the
experts co-opted on the panel who are requested to write back a brief prediction.
Written predictions of experts are collated, edited and summarized together by the
Co-ordinator. Based on the summary, Co-ordinator designs a new set of questions
and gives them to the same experts who answer back again in writing. Co-ordinator
repeats the process of collating, editing and summarizing the responses. Steps 3 and
4 are repeated by the Co-ordinator to experts with diverse backgrounds until
consensus is reached. If there is divergence of opinions and hence conclusions, Co-
ordinator has to sort it out through mutual discussions. Co-ordinator has to have the
necessary experience and background as he plays a key role in designing structured
'questionnaires and synthesising the data. Direct interaction among experts is
avoided nor their identify is disclosed. Procedure also avoids inter-personnel
conflicts nor strong-willed experts are able to dominate the group. This method is
also used for technology forecasting.

d) Nominal Croup Technique

This is a further modification of Delphi method of forecasting. A panel of seven to
ten 39 Market and Demand Analysis i) ii) iii) iv) v) vi) e) experts is formed and
allowed to interact, discuss 'and rank all the suggestions in descending order as per
the following procedure: Experts sit around a table in full view of one another and
are asked to speak to each other. Facilitator hands over copies of questionnaire
needing a forecast and each expert is expected to write down a list of ideas about
the questions. After everyone has written down their ideas, Facilitator asks each
expert to share one idea out of own list with the group. The idea shared is written
on the `flip chart' which everyone can see. Experts give ideas in rotation until all of
them are written on the `flip chart'. No discussion takes place in this phase and
usually 15 to 25 ideas emerge from this format. In the next phase, experts discuss
ideas presented by them. Facilitator ensures that all ideas have been adequately
discussed. During discussions similar ideas are combined and paraphrased
appropriately. This reduces the number of ideas. After completing group
discussions, experts are asked to give in writing ranks to ideas according to their
 perception of priority. Simple Average Method Among the quantitative techniques
for demand analysis, simple Average Method is the first one that comes to one's
mind. Herein, we take simple average of all past periods - simple monthly average
of all consumption figures collected every month for the last twelve months or
simple quarterly average of consumption figures collected for several quarters in
the immediate past. Thus, Sum of Demands of all periods Simple Average : Number
of periods

e) Moving Average Method

Method of Simple Average is faulted on account of the fact that all past periods are
given same importance whereas it is justifiable to accord higher importance to
recent past periods. Moving Average Method takes a fixed number of periods and
after the elapse of each period, data for the oldest time period is discarded and the
most recent past period is included. Whatever the period selected, it must be kept
constant - it may be three, four or twenty periods by once it decided, we must
continue with same number of periods. Sum of Demands of Chosen periods Simple
Average : Number of chosen periods
f) Weighted Moving Average
In Moving Average Method, weighted given to the selected number of periods is
same. This has been refined to include the Weighted Moving Average which allows
varying weightages for demands in old periods. Depending upon the age of the
period, with-age can be varied: Weighted Moving Average = W1 x D1 + W2D2 +
............+ Wn x Dn where W1, W2 ........Wn are the weightages for the different
periods in percentages so that W1+W2+ ...................................... +Wn=1 This
method has the advantage that it allows forecaster to compensate for some known
trend in demand or seasonality of demand by carefully fitting appropriate
coefficients of weighted to those periods. The weightages have to be decided by the
forecast analysts and this decision is critical to the accuracy of demand forecast.

❖ Market Planning

This steps under Market and Demand Analysis is not related to actual analysis, but related to
Market plans of new firm (if idea under consideration is selected). Under this step, four P’s of
Marketing viz Product, Price, Place and Promotion should be well designed to achieve the
expected level of Market Penetration

Objective of Technical Analysis

Primary Objective:
 • First and foremost important objective of technical analysis is to see whether the project
idea is feasible or not from technical point of view or not

Secondary Objective

• To find out the most optimal formulation of the project technology, size, location etc.

To find out the cost of project, so that profitability can be calculated

Activities in Technical Analysis

➢ Technology selection

➢ Material and utilities input requirements

➢ Flexibility in product-mix

➢ Plant capacity

➢ Location and size of the project

➢ Machinery and equipment

Technology Selection

 Plant Capacity

 Material and utilities input requirements

 Investment Outlay and production costs

 Use by other units

 Flexibility in Product mix

 Latest Developments

 Appropriateness of technology.

Materials and Utilities Input Requirements

 Raw-materials

 Processed Industrial materials and components

 Auxiliary materials and factory supplies

  Utilities

Product Mix Flexibility

Another area to be analysed under the technical analysis is flexibility of technology and plan
regarding product mix.

Plant Capacity

¶ Technological requirements

¶ Input constraints

¶ Market conditions

¶ Investment cost & resources of firms

Location and Site selection

 Nearness to raw-materials and market

 Availability of infrastructure
 Labour situations
 Government policies
 Other factors

Machinery and Equipments

Technical analysis of a project idea should include the study of required machinery and
equipment to run the project. The machinery and technology required depends on the plant
capacity and type of technology selected.

Charts and Layouts

 Material Flow Diagram

 Production Line Diagram

 Transport Layout

 Utility Consumption Layout

 Communication Layout

 Organisation Layout
  Plant Layout

Work Schedule

 To anticipate problems like to arise during the installation phase and suggest possible
means for coping with them

 To establish the phasing of investments taking into account the availability of finances

 To develop a plan operations covering the initial period (the running - in period)

Cost of Project

 Land and site development

 Building and civil works
 Plant and machinery
 Technical Know-how and Engineering fees
 Expenses on foreign technicians and training of Indian technicians abroad
 Preliminary and capital issue expenses.
 Pre-operative expenses
 Margin money for working capital
 Initial cash losses
Means of Financing
➔ Share Capital

➔ Term Loan

➔ Debenture Capital

➔ Deferred Credit

➔ Incentive Sources

➔ Miscellaneous Sources

Financial analysis of Project

Definition: Process of raising the funds (money) for an economically separable project,
where providers of the fund look primarily cash flows and revenue of that project as a
source of interest (dividend) payment and capital repayment.”
Source of Finance

1. Equity shares

2. Preference shares

3. Debentures

4. Bonds

5. Term Loans from financial institutions

6. Un-secured Loans

7. Lease financing

8. Deferred Credit

9. Capital Investment subsidy

10. Bridge finance (Bridge Loan)

11. Internal accruals (in case of Expansion Projects).

Main Activity

Financial Evaluation of Project

Financial Evaluation is a Planning Process used to determine whether a firm’s low term
investment in project is financially feasible or not. On the basis of expected inflows and outflows
in future
Project Appraisal:

“It is a detailed study of several aspects of given project before recommending it.”

Various aspects of Project Appraisal

A. Technical appraisal

B. Commercial appraisal

C. Economic appraisal

D. Financial appraisal

E. Management appraisal.

Risk Analysis

A process of identifying and quantifying the risks involved in a project and developing measures
to avoid and manage such a risk”

Types of Risks
 Completion risks

Technical risks

Economic risks

Social risks

Political risks

Production risks

Marketing risks

Financial risks

Activities involved in Risk Analysis

➢ Risk assessment

➢ Risk management

Implementation Monitoring & Control of Project

❖ Project Scheduling

❖ Project Team-management

❖ Project Monitoring and implementation

Project Financing In India

Project Finance is one of the key focus areas in today’s world because of continuous growth and
expansion of the industries at a rapid rate. Project finance is a centuries-old form of financing high-
risk, development-oriented projects.

Project finance is the long-term financing of infrastructure and industrial projects based upon non-
recourse or limited alternative of financial structure where project debt and equity used to finance
the project are paid back from the cash flow engendered by the project.

They are most ordinarily non-recourse loans, which are fortified by the project assets and paid
entirely from project cash flow, rather than from the general assets or creditworthiness of the
project sponsors, a decision in part braced by financial modeling.

Methods of Project Financing

A survey said that 90% of respondents identified money as the greatest obstacle to implementation
of any project.
The various sources of finance can be broadly divided into two categories, viz. equity capital and
debt capital (borrowed capital). The combination of equity and debt should be judiciously chosen,
and it will vary according to the nature of the project. The project manager can choose any one or
a combination of two or more of these methods to finance the project.

1. Share capital – equity capital and preference capital.

2. Term loan
3. Debenture capital
4. Commercial banks
5. Bills discounting

Some more types of financing available are

Seed Capital

In consonance with the Government policy which boosts a new class of entrepreneurs and also
aims wider spreading of ownership and control of manufacturing units, a distinct scheme to
complement the resource of an entrepreneur has been presented by the Government. Assistance in
this scheme is accessible in the nature of seed capital which is generally given by way of long term
interest free loan. Seed capital aid is provided to small as well as medium scale units promoted by
eligible entrepreneurs.

Government subsidies

Subsidies drawn-out by the Central as well as State Government form a very significant type of
funds presented to a company for implementing its project. Subsidies may be available in the
nature of absolute cash grant or long-term interest free loan. In fact, while settling the means of
finance, Government subsidy forms an key source having a vital bearing on the putting into
practice of many a projects.

Stages in Project Financing

Pre- finance stage

It includes the following

a)Project identification

A Project or Projects selected should be integrated with the Strategic Plan of the Organisation. The
project plan should match the goals of the organization. It should be realistic to be implemented.

b) Identifying risk and minimizing

“The right project at the right time at the right place and at the right price”.

There should be adequate amount of resources available for the project to be implemented.
c) Technical and Financial feasibility

An organization before starting any new project or expanding an existing one must look into
analyzing each and every factor which is essential for the project to be feasible. It must be
financially as well as technically feasible.

Financing stage

a)Arrangement of equity/debt/loan.

b)Negotiation and Syndication of the same.

c)Documentation and checking all the rules and regulations or policies relating to the starting of
the project.

d) Payment.

Post Financing

a)Monitoring and review of project from time to time. The project manager must keep a
check on the proper working of the project.

b)Project closure – It is ending the project

c)Repayment and monitoring

The amount taken in the form of loan, equity and debt must be repaid back and proper monitoring
and control of the project must be carried.

Framework and Guidelines

The list of major contracts for project consist of

Concession agreement, license or mineral lease, construction contract or a development

management agreement, supply agreement, sales agreement, operating agreement, other major
contracts may occur in any specific project depending on the structure accepted.

The borrower may have to get certain statutory and non – statutory clearances essential for the
projects like techno economic clearance, pollution, environment and forest clearance, company
registrations, financing and land availability/ concessions etc.

The promoter while making the application to the financial institutions records the copies of
documents most vital of which are: i) copy of letter of allotment of plot/ sale deed in good turn of
the borrower of the plot. ii) Detailed plan of project approved by the local body. iii) Partnership
deeds/ articles of association in case of a company.
Boom of Project Financing in India

A study placed India on top in the global project finance market in 2009, ahead of Australia, Spain
and the US. The key market for project finance in 2009 was the domestic Indian market, which
rose up $30 billion (Rs 1.38 lakh crore), accounting for 21.5 per cent of the global project finance
market. This was up from $19 billion in 2008.

The global project finance market was buttressed up in 2009 by government-linked projects such
as social infrastructure and renewables and by the detail that 20 per cent of the market is in India,
which poured to become the biggest and busiest market last year, knocking down Australia from
the previous year’ top position

Given the credit crunch and the collapse of major banks in the West, the global Project Finance
figures were not as strong as in the previous couple of years. According to PFI data, globally, the
Project Finance loan figure positions at $139.2 billion in 2009 compared to the overwhelming
$250 billion in 2008 and $220 billion in 2007. Totaling the figures for project bonds at $8.2 billion,
down from $11.9 billion in 2008, the global Project Finance market volume stood at $147.4 billion.
That was a descent of 44 per cent from 2008, but to put it in framework, the overall global Project
Finance market set upright at $114.5 billion in 2004 and at $166 billion in 2005.

SBI settled 36 deals amounting to $20 billion of debt – 35.2 per cent of the total volume for the
Asia-Pacific region. This comprised some major contracts such as financing for the Sasan ultra
mega power project, projects of Adani Power and Sterlite Energy, and resources for Vodafone and
Unitech in the telecom sector.

The power sector sustained to decree lending and generated a record volume. More than $22.3-
billion loans in 53 transactions in the sector were signed globally all through the year, accounting
for almost 40 per cent of the entire PF market. Also, a major contribution came from social
infrastructure development patterns launched by the government lately.

In all, 224 financial institutions were ranked. Only prime arranger mandates are credited for the
league table, while involvement in syndications is not credited. Also, PFI tables do not include
property or real estate sector transactions. In addition, the Project Finance tables do not comprise
corporate loans and those guaranteed by sponsors or governments.

2013 Project Finance volume by top 15 nations

An Example of Project Financing

World Bank keen to finance solar projects in IndiaThe World Bank has hurled consultations with
the ministries of finance and new and renewable energy for financing solar projects in phase II of
the National Solar Mission.The World Bank is really enthralled with the performance of phase I
of the National Solar Mission in which, the mounted capacity has increased to 2,000 Mw from 30
Mw.

The World Bank was tied up with the ministry of new and renewable energy during phase I in
working out the policy and positioning in place essential guidelines but had not provided funds.
Though, in the course of phase II, the World Bank is quite ardent to finance solar projects. The
total prerequisite of funds is of the directive of Rs 80,000 crore ($13 billion) of which, as high as
Rs 54,000 crore ($9 billion) will be debt based on a 70:30 debt equity ratio. The World Bank has
conveyed that it was profound to a degree finance debt requirement. The total debt prerequisite of
Rs 54,000 crore, is much necessary to come from the scheduled commercial banks.

In the course of the first phase, commercial banks had lent $700 million and they need to scale up
to the levels foreseen. In order to make investment in solar power more striking for scheduled
commercial banks, the government will need to tactically use limited public resources to leverage
commercial financing, report structural barriers that preclude commercial banks from contributing
and expedite appropriate technology deployment.

The role of enabling public funding in leveraging commercial lending on a constant basis
through risk plummeting instruments as well as innovations in financing is important and
authoritative for moving solar development to a largely non-recourse financing mode in India. The
World Bank in its report titled, “Paving the way for a Transformational Future: Lessons from
Jawaharlal Nehru National Solar Mission Phase I”, recommends that the government could offer
multiple financial way out involving viability gap fund, generation-based incentives, credit
guarantees, credit lines to banks at a concession to cut interest rates and secondary public finance
to spread the tenor of loans. According to the World Bank, by means of public financing for
lengthening the tenor of a loan and providing subordinated debt is least expensive amid all other
options, with the objective of decreasing the solar tariff to Rs 5.50 per unit.

Conclusion

India required an investment of over $1 Trillion for infrastructure development in the 12th Five
year plan which goes from 2012-2017. Government is putting a better prominence on
infrastructure development and the successive need for much advanced levels of capital to fund
these projects. However the knowledge & skill sets essential in these areas is absent and as a
outcome there has been a rebirth of interest in PFI and PPP project finance deals.

The need for vigorous knowledge with respects to structuring and re-financing projects is greater
now than ever before.
 UNIT IV

Project Management during Construction Phase

Six Phases of a Project
Pre design

Pre-design is a team process conducted through the collaborative efforts of Project Management
and design firms in consultation with the customer and stakeholders. This phase shapes the ideas
into a well-defined project that is feasible, properly approved and well funded. Objectives:

• Demonstrate project need and feasibility

• Define project requirements
• Explore alternative facility solutions
• Form a project team
• Select a design firm if one is to be used
• Establish project financing
• Submit project for review by the Capital Improvement Advisory Board
• Submit project for review by the Capital Projects Advisory Board

Design

A final design in produced with feedback from both the customer and Project Management
staff. The goal is to develop a design that meets the project’s programmatic needs, is compliant
with applicable standards, and is within budget. Objectives:

• Establish a contract with a design firm

• Hold project team meetings with the design firm
• Determine the best method for contractor selection
• Review the final design and cost estimates
• Approve the design and budget

Development of Construction documents

• After design approval, detailed construction drawings and building equipment

specifications are prepared showing how the building or project is to be
constructed. These documents provide contractors the level of detail needed to calculate
construction costs and bid on the project. Unless design or programmatic issues surface,
customer input and review is not required. Objectives:
Prepare construction documents

• Begin planning for the construction period

• Review construction documents
• Prepare construction bid documents
Bid Process

Once construction bid documents are ready, they are released via a formal bid-opening
process. When the bids have been returned, they are reviewed and the project is awarded
according to purchasing policies. Alternative contracting methods such as design build or
construction manager and general contractor (CM/GM) follow a different procurement
process. These types of projects require an exemption to the normal public purchasing process.
Objectives:

• Solicit bids
• Review returned bids
• Award the project to the selected contractor

Construction

During the construction phase, Project Management acts as a clearinghouse for information on
projects. We visit the construction site to ensure work is progressing on schedule and on budget.
Objectives:

• Assistance in obtaining building permits

• Relocate building occupants, if needed
• Conducting a pre-construction meeting
• Give approval to begin construction
• Monitor compliance with construction documents
• Keep all stakeholders well-informed
• Solve problems that may arise

Occupancy

As construction nears completion; we will assist clients with their move into the new or
improved facility. We also coordinate commissioning of building systems, which involves
testing and calibrating such building features as fire alarm and suppression system, and heating,
ventilation and air-conditioning equipment. Objectives:

• Commission building systems

• Coordinate client’s move into the new space or facility
• Close out project budget

THE PROJECT ORGANIZATION STRUCTURE

A project organization is a structure that facilitates the coordination and implementation of project
activities. Its main reason is to create an environment that fosters interactions among the team
members with a minimum amount of disruptions, overlaps and conflict. One of the important
decisions of project management is the form of organizational structure that will be used for the
project. Each project has its unique characteristics and the design of an organizational structure
should consider the organizational environment, the project characteristics in which it will operate,
and the level of authority the project manager is given. A project structure can take on various
forms with each form having its own advantages and disadvantages. One of the main objectives
of the structure is to reduce uncertainty and confusion that typically occurs at the project initiation
phase. The structure defines the relationships among members of the project management and the
relationships with the external environment. The structure defines the authority by means of a
graphical illustration called an organization chart. A properly designed project organization chart
is essential to project success. An organization chart shows where each person is placed in the
project structure. An organization chart is drawn in pyramid form where individuals located closer
to the top of the pyramid have more authority and responsibility than members located toward the
bottom. It is the relative locations of the individuals on the organization chart that specifies the
working relationships, and the lines connecting the boxes designate formal supervision and lines
of communication between the individuals

FACTORS IN DESIGNING A PROJECT STRUCTURE

There are two design factors that significantly influence the process of developing a project
management structure. These are the level of specialization, and the need for coordination. The
project manager should consider these factors at the moment of designing the project organization
in order to maximize the effectiveness of the structure.

Specialization affects the project structure by the degree of specialty in technical areas or
development focus; projects can be highly specialized and focus on a specific area of development,
or have different broad specializations in many areas of development. For large projects that have
multiple specializations or technical areas, each area may have a different need; from differences
in goals, approaches and methodologies, all of which influence the way the project will implement
its activities. A project that has two components, a reconstruction and education, will need to
manage different approaches based on the specialization of each one. In the education component,
the needs is for a structure more open and informal, where the time horizon is longer, with more
emphasis on sharing and generation of new ideas in order to achieve innovation and creativity. In
a reconstruction component, there are specific goals, a need for a rigid, hierarchical structure, and
there is a defined time horizon with little sharing of ideas. While specialization allows each project
component to maximize their productivity to attain their departmental goals, the dissimilarities
may lead to conflict among the members or leads of each component. In general, the greater the
differences, the more problems project managers have in getting them to work together.

Coordination is required to bring unity to the various elements that make up a project. The project
work is organized around a work breakdown structure (WBS) that divides the overall project goals
into specific activities or tasks for each project area or component; the

project manager must design an organizational structure that ensure that the various components
are integrated so that their efforts contribute to the overall project goal. Integration is the degree
of collaboration and mutual understanding required among the various project components to
achieve project goals. Most projects are characterized by the division of labor and task
interdependencies, creating the need for integration to meet project objectives. This need is greatest
when there are many project components that have different specializations. The goal of the project
management structure is the achievement of harmony of individual efforts toward the
accomplishment of the group goals. The project manager's principal responsibility is to develop
integrating strategies to ensure that a particular component or activity is organized in a way that
all of the components, parts, subsystems, and organizational units fit together as a functioning,
integrated whole according to the project master plan.

TYPES OF PROJECT ORGANIZATIONS STRUCTURES

Of the several factors to consider when deciding on the design of project organizational structures,
especially within an existing organization, the factor that has a significant is the extent of authority
and responsibility top management is prepared to delegate to the project manager. An important
function of the organizations’ top management is to design an organization that fully supports
project management. This is done by redesigning the organization to emphasize the nature of the
projects and adapting how roles and responsibilities are assigned. The organization needs to define
the project manager’s job, degree of authority and autonomy, and relationship to both the
organization, other projects and to other units in the organization. Upper management also should
specify communication channels, methods of conflict resolution between the project and the rest
of the organization. Development organizations are usually organized around programmatic focus
areas such as health or education. These areas are usually called program units and are centered
on a specific development field. In this environment a project has three organization structures
available for design and all are defined by the level of organizational authority given to the project
manager:

➢ Programmatic based, in which project managers have authority only within the program
focus or area
➢ Matrix based,, in which the project manager shares responsibility with other program unit
managers
➢ Project based, in which project managers have total authority.

Programmatic Based :
The programmatic focus refers to a traditional structure in which program sector managers
have formal authority over most resources. It is only suitable for projects within one
program sector. However, it is not suitable for projects that require a diverse mix of people
with different expertise from various program sectors. In a programmatic based
organization, a project team is staffed with people from the same area. All the resources
needed for the project team come from the same unit. For instance, if the project is related
to the health area, the project resources come from the health unit. Director Project
Manager Staff Staff Staff Staff Project Manager Staff Staff Staff Project Manager Staff
Staff Staff Project Manage.The most obvious advantage of programmatic based projects is
that there are clear lines of authority, in large projects the project managers tend to also be
the program unit manager. There is not need to negotiate with other program units for
resources, since all of the staff needed for the project will come from the same program
area. Another advantage of this type of organization is that the team members are usually
familiar with each other, since they all work in the same area.
The team members also tend to bring applicable knowledge of the project. A major
disadvantage of the programmatic based organization is that the program area may not have
all of the specialists needed to work on a project. A nutrition project with a water
component, for instance, may have difficulty acquiring specialty resources such as civil
engineers, since the only people available will work in their own program unit. Another
disadvantage is that project team members may have other responsibilities in the program
unit since they may not be needed fulltime on a project. They may be assigned to other
projects, but it is more typical that they would have support responsibilities that could
impact their ability to meet project deadlines.
Matrix Based :
Matrix based project organizations allow program units to focus on their specific technical
competencies and allow projects to be staffed with specialists from throughout the
organization. For instance, nutrition specialists may report to one program unit, but would
be allocated out to work on various projects. A health specialist might report to the health
unit, but be temporarily assigned to a project in another project that needs health expertise.
It is common for people to report to one person in the programmatic unit, while working
for one or two project managers from other projects in different programmatic units. The
main advantage of the matrix based organization is the efficient allocation of all resources,
especially scarce specialty skills that cannot be fully utilized by only one project. For
instance, monitoring and evaluation specialists may not be utilized full-time on a project,
but can be fully leveraged by working on multiple projects. The matrix based organization
is also the most flexible when dealing with changing programmatic needs and priorities.
Additional advantages to matrix management are: it allows team members to share
information more readily across the unit boundaries, allows for specialization that can
increase depth of knowledge and allow professional development and career progression
to be managed. It is easier for a program unit manager to loan an employee to another
manager without making the change permanent. It is therefore easier to accomplish work
objectives in an environment when task loads are shifting rapidly between programmatic
units. The main disadvantage is that the reporting relationships are complex. Some people
might report to programmatic unit managers for whom little work is done, while actually
working for one or more project managers. It becomes more important for staff members
to develop strong time management skills to ensure that they fulfill the work expectations
of multiple managers. This organization also requires communication and cooperation
between multiple programmatic unit managers and project managers since that all be
competing for time from the same resources. Matrix management can put some difficulty
on project managers because they must work closely with other managers and workers in
order to complete the project. The programmatic managers may have different goals,
objectives, and priorities than the project managers, and these would have to be addressed
in order to get the job done. An approach to help solve this situation is a variation of the
Matrix organization which includes a coordinating role that either supervises or provides
support to the project managers. In some organizations this is know as the Project
Management Office (PMO), dedicated to provide expertise, best practices, training,
methodologies and guidance to project managers.
Project Based:
In this type of organization project managers have a high level of authority to manage and
control the project resources. The project manager in this structure has total authority over
the project and can acquire resources needed to accomplish project objectives from within
or outside the parent organization, subject only to the scope, quality, and budget constraints
identified in the project. In the project based structure, personnel are specifically assigned
to the project and report directly to the project manager. The project manager is responsible
for the performance appraisal and career progression of all project team members while on
the project. This leads to increased project loyalty. Complete line authority over project
efforts affords the project manager strong project controls and centralized lines of
communication. This leads to rapid reaction time and improved The Project Management
Structures www.pm4dev.com responsiveness. Moreover, project personnel are retained on
an exclusive rather than shared or part-time basis. Project teams develop a strong sense of
project identification and ownership, with deep loyalty efforts to the project and a good
understanding of the nature of project’s activities, mission, or goals.
Pure project based organizations are more common among large and complicated
projects. These large projects can absorb the cost of maintaining an organization whose
structure has some duplication of effort and the less than cost-efficient use of resources. In
fact, one major disadvantage of the project based organization is the costly and inefficient
use of personnel. Project team members are generally dedicated to one project at a time,
even though they may rarely be needed on a full-time basis over the life cycle of the project.
Project managers may tend to retain their key personnel long after the work is completed,
preventing their contribution to other projects and their professional development. In this
type of organization, limited opportunities exist for knowledge sharing between projects,
and that is a frequent complaint among team members concerning the lack of career
continuity and opportunities for professional growth. In some cases, project personnel may
experience a great deal of uncertainty, as organization’s or donor’s priorities shift or the
close of the project seems imminent.
One disadvantage is duplication of resources, since scarce resources must be duplicated on
different projects. There can also be concerns about how to reallocate people and resources
when projects are completed. In a programmatic focus organization, the people still have
 jobs within the program unit. In a project-based organization it is not always clear where
everyone is reassigned when the project is completed. Another disadvantage is that
resources may not be needed as a full time for the entire length of the project, increasing
the need to manage short term contracts with consultants and other subject matter experts.
A variety of this pure project approach is temporarily project-based organizations. This
organization consists of a project team pulled together temporarily from their program unit
and led by a project manager that does not report to a programmatic unit. The project
manager has the full authority and supervision of the project team. Another design is based
on a mixed structure that includes a matrix, programmatic focus and project based; this mix
reflects the need for more flexibility in a development organization to accommodate
different requirements. For example a health program may have a couple of projects short
term and long term all reporting to the program manager. An education project may be
organized on a matrix using resources part-time from other units, and a large water project
organized as a fully project-based were all staff report to the project manager. It is not
unusual to find this type of mixed designs on development organizations.
➢ Planning and controlling project by using PERT and CPM

PERT/CPM for Project Scheduling & Management

1. INTRODUCTION

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.

1.1 Brief History of CPM/PERT

CPM/PERT or Network Analysis as the technique is sometimes called, developed along two
parallel streams, one industrial and the other military.

CPM was the discovery of M.R.Walker of E.I.Du Pont de Nemours & Co. and J.E.Kelly of
Remington Rand, circa 1957. The computation was designed for the UNIVAC-I computer. The
first test was made in 1958, when CPM was applied to the construction of a new chemical plant.
In March 1959, the method was applied to a maintenance shut-down at the Du Pont works in
Louisville, Kentucky. Unproductive time was reduced from 125 to 93 hours.

PERT was devised in 1958 for the POLARIS missile program by the Program Evaluation Branch
of the Special Projects office of the U.S.Navy, helped by the Lockheed Missile Systems division
and the Consultant firm of Booz-Allen & Hamilton. The calculations were so arranged so that they
could be carried out on the IBM Naval Ordinance Research Computer (NORC) at Dahlgren,
Virginia.
1.2 Planning, Scheduling & Control

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.

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?

1.3 The Framework for PERT and CPM

Essentially, there are six steps which are common to both the techniques. The procedure is listed
below:

I. 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.

II. Develop the relationships among the activities. Decide which activities must precede and
which must follow others.

III. 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.

IV. Assign time and/or cost estimates to each activity

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

VI. 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 replanned, rescheduled and resources for them can be reallocated
flexibly, without affecting the whole project.

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.

1.4 Drawing the CPM/PERT Network

Each activity (or sub-project) in a PERT/CPM Network is represented by an arrow symbol. Each
activity is preceded and succeeded by an event, represented as a circle and numbered.
At Event 3, we have to evaluate two predecessor activities - Activity 1-3 and Activity 2-3, both of
which are predecessor activities. Activity 1-3 gives us an Earliest Start of 3 weeks at Event 3.
However, Activity 2-3 also has to be completed before Event 3 can begin. Along this route, the
Earliest Start would be 4+0=4. The rule is to take the longer (bigger) of the two Earliest Starts. So
the Earliest Start at event 3 is 4.

Similarly, at Event 4, we find we have to evaluate two predecessor activities - Activity 2-4 and
Activity 3-4. Along Activity 2-4, the Earliest Start at Event 4 would be 10 wks, but along Activity
3-4, the Earliest Start at Event 4 would be 11 wks. Since 11 wks is larger than 10 wks, we select it
as the Earliest Start at Event 4.We have now found the longest path through the network. It
will take 11 weeks along activities 1-2, 2-3 and 3-4. This is the Critical Path.

1.5.3 The Backward Pass - Latest Finish Time Rule

To make the Backward Pass, we begin at the sink or the final event and work backwards to the
first event.
At Event 3 there is only one activity, Activity 3-4 in the backward pass, and we find that the value
is 11-7 = 4 weeks. However at Event 2 we have to evaluate 2 activities, 2-3 and 2-4. We find that
the backward pass through 2-4 gives us a value of 11-6 = 5 while 2-3 gives us 4-0 = 4. We take
the smaller value of 4 on the backward pass.

1.5.4 Tabulation & Analysis of Activities

We are now ready to tabulate the various events and calculate the Earliest and Latest Start and
Finish times. We are also now ready to compute the SLACK or TOTAL FLOAT, which is defined
as the difference between the Latest Start and Earliest Start.

Event Duration(Weeks) Earliest Earliest Latest Latest Total

Start Finish Start Finish Float

1-2 4 0 4 0 4 0

2-3 0 4 4 4 4 0

3-4 7 4 11 4 11 0
 1-3 3 0 3 1 4 1

2-4 6 4 10 5 11 1

▪ The Earliest Start is the value in the rectangle near the tail of each activity
▪ The Earliest Finish is = Earliest Start + Duration
▪ The Latest Finish is the value in the diamond at the head of each activity
▪ The Latest Start is = Latest Finish - Duration

There are two important types of Float or Slack. These are Total Float and Free Float.

TOTAL FLOAT is the spare time available when all preceding activities occur at
the earliestpossible times and all succeeding activities occur at the latest possible times.

▪ Total Float = Latest Start - Earliest Start

Activities with zero Total float are on the Critical Path

FREE FLOAT is the spare time available when all preceding activities occur at
the earliest possible times and all succeeding activities occur at the earliest possible times.

When an activity has zero Total float, Free float will also be zero.

There are various other types of float (Independent, Early Free, Early Interfering, Late Free, Late
Interfering), and float can also be negative. We shall not go into these situations at present for the
sake of simplicity and be concerned only with Total Float for the time being.

Having computed the various parameters of each activity, we are now ready to go into the
scheduling phase, using a type of bar chart known as the Gantt Chart.

There are various other types of float (Independent, Early Free, Early Interfering, Late Free, Late
Interfering), and float can also be negative. We shall not go into these situations at present for the
sake of simplicity and be concerned only with Total Float for the time being. Having computed
the various parameters of each activity, we are now ready to go into the scheduling phase, using
a type of bar chart known as the Gantt Chart.

1.5.5 Scheduling of Activities Using a Gantt Chart

Once the activities are laid out along a Gantt Chart (Please see chart below), the concepts of
Earliest Start & Finish, Latest Start & Finish and Float will become very obvious.
Activities 1-3 and 2-4 have total float of 1 week each, represented by the solid timeline which
begins at the latest start and ends at the latest finish. The difference is the float, which gives us the
flexibility to schedule the activity.

For example, we might send the staff on leave during that one week or give them some other work
to do. Or we may choose to start the activity slightly later than planned, knowing that we have a
week’s float in hand. We might even break the activity in the middle (if this is permitted) for a
week and divert the staff for some other work, or declare a National or Festival holiday as required
under the National and Festival Holidays Act.

These are some of the examples of the use of float to schedule an activity. Once all the activities
that can be scheduled are scheduled to the convenience of the project, normally reflecting resource
optimisation measures, we can say that the project has been scheduled.

2. Exercise

A Social Project manager is faced with a project with the following activities:

Activity-id Activity - Description Duration

1-2 Social Work Team to live in 5 Weeks

Village

1-3 Social Research Team to do survey 12 Weeks

 3-4 Analyse results of survey 5 Weeks

2-4 Establish Mother & Child Health 14 Weeks

Program

3-5 Establish Rural Credit Programme 15 Weeks

4-5 Carry out Immunisation of Under 4 Weeks

Fives

▪ Draw the arrow diagram, using the helpful numbering of the activities, which suggests
the following logic:
▪ Unless the Social Work team lives in the village, the Mother and Child Health
Programme cannot be started due to ignorance and superstition of the villagers
▪ The Analysis of the survey can obviously be done only after the survey is complete.
▪ Until rural survey is done, the Rural Credit Programme cannot be started
▪ Unless Mother and Child Programme is established, the Immunisation of Under Fives
cannot be started
▪ - Calculate the Earliest and Latest Event Times
▪ - Tabulate and Analyse the Activities
▪ - Schedule the Project Using a Gantt Chart

3. The PERT (Probabilistic) Approach

So far we have talked about projects, where there is high certainty about the outcomes of activities.
In other words, the cause-effect logic is well known. This is particularly the case in Engineering
projects.

However, in Research & Development projects, or in Social Projects which are defined as "Process
Projects", where learning is an important outcome, the cause-effect relationship is not so well
established.

In such situations, the PERT approach is useful, because it can accommodate the variation in event
completion times, based on an expert’s or an expert committee’s estimates.

For each activity, three time estimates are taken

▪ The Most Optimistic

▪ The Most Likely
▪ The Most Pessimistic
The Duration of an activity is calculated using the following formula:

Where te is the Expected time, to is the Optimistic time, tm is the most

probable activity time and tp is the Pessimistic time.

It is not necessary to go into the theory behind the formula. It is enough to know that the weights
are based on an approximation of the Beta distribution.

The Standard Deviation, which is a good measure of the variability of each activity is calculated
by the rather simplified formula:

The Variance is the Square of the Standard Deviation.

4. PERT Calculations for the Social Project

In our Social Project, the Project Manager is now not so certain that each activity will be completed
on the basis of the single estimate he gave. There are many assumptions involved in each estimate,
and these assumptions are illustrated in the three-time estimate he would prefer to give to each
activity.

In Activity 1-3, the time estimates are 3,12 and 21. Using our PERT formula, we get:
 The Standard Deviation (s.d.) for this activity is also calculated using
the PERT formula

We calculate the PERT event times and other details as below for each activity:

Event to tm tp te ES EF LS LF TF s.d. Var.

1-3 3 12 21 12 0 12 0 12 0 3 9

3-5 6 15 30 16 12 28 12 28 0 4 16

1-2 2 5 14 6 0 6 5 11 5 2 4

2-4 5 14 17 13 6 19 11 24 5 2 4

3-4 2 5 8 5 12 17 19 24 7 1 1

4-5 1 4 7 4 19 23 24 28 5 1 1

5. Estimating Risk

Having calculated the s.d. and the Variance, we are ready to do some risk analysis. Before that we
should be aware of two of the most important assumptions made by PERT.

▪ The Beta distribution is appropriate for calculation of activity durations.

▪ Activities are independent, and the time required to complete one activity has no bearing
on the completion times of it’s successor activities in the network. The validity of this
assumption is questionable when we consider that in practice, many activities have
dependencies.

5.1. Expected Length of a Project

PERT assumes that the expected length of a project (or a sequence of independent activities) is
simply the sum of their separate expected lengths.
Thus the summation of all the te's along the critical path gives us the length of the project.

Similarly the variance of a sum of independent activity times is equal to the sum of their individual
variances.

In our example, the sum of the variance of the activity times along the critical path, VT is found
to be equal to (9+16) = 25.

The square root VT gives us the standard deviation of the project length. Thus, ST=Ö 25=5. The
higher the standard deviation, the greater the uncertainty that the project will be completed on the
due date.

Although the te's are randomly distributed, the average or expected project length Te approximately
follows a Normal Distribution.

Since we have a lot of information about a Normal Distribution, we can make several statistically
significant conclusions from these calculations.

A random variable drawn from a Normal Distribution has 0.68 probability of falling within one
standard deviation of the distribution average. Therefore, there is a 68% chance that the actual
project duration will be within one standard deviation, ST of the estimated average length of the
project, te.

In our case, the te = (12+16) = 28 weeks and the ST = 5 weeks. Assuming te to be normally
distributed, we can state that there is a probability of 0.68 that the project will be completed within
28 ± 5 weeks, which is to say, between 23 and 33 weeks.

Since it is known that just over 95% (.954) of the area under a Normal Distribution falls within
two standard deviations, we can state that the probability that the project will be completed within
28 ± 10 is very high at 0.95.

5.2. Probability of Project Completion by Due Date

Now, although the project is estimated to be completed within 28 weeks (te=28) our Project
Director would like to know what is the probability that the project might be completed within 25
weeks (i.e. Due Date or D=25).

For this calculation, we use the formula for calculating Z, the number of standard deviations that
D is away from te.

By looking at the following extract from a standard

normal table, we see that the probability associated with
a Z of -0.6 is 0.274. This means that the chance of the
project being completed within 25 weeks, instead of the
expected 28 weeks is about 2 out of 7. Not very
encouraging.
On the other hand, the probability that the project will be completed within 33 weeks is calculated
as follows:

The probability associated with Z= +1 is 0.84134. This is a strong probability, and indicates that
the odds are 16 to 3 that the project will be completed by the due date.
 If the probability of an event is p, the odds for its occurrence are a to b, where:

Human Aspects of Project management

There has been much debate about the high number of project failures. Often, failure rates can
vary from 50% to as much as 90%. There is a general assumption in organizations that if policies
and procedures exist, progress should result, simply because structures are in place. This notion
is incorrect; procedures and policies cannot be the sole focus when it comes to driving progress.

Few people are motivated by fancy project plans, mind maps or business intelligence software
designs.
They need motivation, encouragement, empathy and leadership.”
– Lunga Msengana

Most project managers are purely driven by project planning software, bodies of knowledge,
procedures and policies. When used in isolation, without other crucial elements in project
management, they become more of a burden than a means of offering sustainable solutions. It is
therefore not enough merely to impose plans on people. Rather, it is important also to be
sensitive to the project management environment in which the project exists. This sensitivity
requires project managers to pay close attention to behaviours and attitudes.

Once you unlock the keys to your people, you unlock the keys to the success of the project. If the
human aspect in project management is so vital to success, why, then, do people pay so little
attention to it? People in project management circles tend to view the human aspect as part of the
“fluffy stuff” or “soft skills”. Since some project managers do not have staff reporting to them,
they do not consider themselves to be leaders, and therefore do not pay attention to developing
their leadership abilities. Some associate leadership with position, but leadership has less to do
with position than it does disposition.

It is clear that people are the key to success in a project. However, what are some of the human
aspects that project managers can focus on as a way of improving situations in their own
environments? These include:

1. The power of influence

Most project managers, regardless of the organizational structure, do not have direct
reports. Therefore, in order to drive progress in a project, project managers cannot adopt
the same management style as line managers. As project managers, we rely on the power
of influence to make things happen in projects. A project can become too complex, and
team members may not necessarily believe that it can be a success with the various
 constraints. Therefore a project manager can be seen as a person who is just pushing the
boundaries without being careful to see the bigger picture. This is one of the areas where
the power of influence becomes necessary. A project manager needs to convince the
teams to buy into his vision. This he has to do authentically. It is very difficult to achieve
any success in projects without some elements of influence coming from a project
manager. Project managers need to be very skilled in this area. »

2. Commitment from the team members

Many project managers abuse the power of influence, to a point where it can be
interpreted as extreme manipulation. This creates resentment on the part of project teams.
Face it: people can smell authenticity a mile away. You cannot just resort to the tactics of
smiling or “being nice” in the hope of stimulating progress. If you are not genuinely nice
to people, and do not have deep caring and empathy, it will show, and people will resent
you instead of being influenced by you. As project managers, what we often look for in
people are commitment and engagement, but what usually manifests is compliance.

In our dealings with project teams, when we do not obtain the desired response, we
quickly jump into compliance mode, sometimes without even noticing it. We implement
fear-based approaches to create a sense of urgency in projects. Even though project
managers should be effective planners who chart intricate directions, the reality is that
most of the time, project members already know what needs to be done. It is important
for project managers to understand that their roles extend beyond merely making project
plans, implementing projects and monitoring progress – they are actually facilitators of a
process. They bring together people with diverse views and backgrounds to create
sustainable solutions. Most of us were raised in a culture that taught us that the way to
manage for excellence is to tell people exactly what they have to do and then to make
sure they do it. We learned to play the master designer, assuming we could engineer
people into perfect performance. But we cannot direct people into excellence; we can
only engage them enough so that they want to do excellent work.

By using such compliance techniques, I believe we are selling ourselves short. Compliant
people do what is expected of them. They may support you, but they are not truly
committed. Committed people bring a unique energy which helps to make projects
successful, because they go the extra mile in their creativity. When people are invested,
not only are they committed, but they feel responsible for making the project a success.

The reason we are comfortable with going the compliance route is that it comes from the
command and control era, which some of us greatly admire. We become wary if the
energy released through commitment can be controlled and directed; therefore we settle
for compliance and content ourselves with moving people up the compliance ladder. Our
job as project managers is to make people committed and engaged by first being engaged
ourselves. There is no point in attempting to encourage someone to be engaged when we
are not. This produces superficial agreement and compliance.

Second, we must be on the level with people. We must not inflate the benefits of doing a
 project, or sweep problems under the rug. Our task is to describe the vision as simply and
as honestly as we can.

Lastly, as difficult as it may sound, we must let others choose. We do not have to
“convince” them of the benefits of a project. In fact, the efforts we make to persuade
them to “become engaged” may be seen as manipulative, and may actually preclude
engagement. The more willing we are for them to make a free choice, the freer they will
feel. This is difficult for subordinates, who are usually conditioned to feel that they must
comply. But we can still help by creating the time and the security for them to develop
their own sense of vision.

3. Relationship building

Trust is the bedrock of any relationship. This tends to be difficult in a modern-day project
management scenario, where there is no trust between the client, supplier and project
teams. Unfortunately, if project managers want to enjoy the beauty of relationships, they
must frame such relationships with trust. The real truth about trust is that when others
trust us, they truly take a risk. Whenever we do not let them down, we reduce that risk
and build the relationship. The opposite is also true: if we let them down, we ruin the
relationship. In this way, trust can be compared to a bank account: we make either
deposits or withdrawals. We make deposits when we do not violate people’s trust, and we
make withdrawals when we violate that trust.

Relationships are never a smooth ride, they are invariably tested. The question is, when
tough times come, what will be more important to you? Will it be the situation or the
relationship? Whenever a project manager puts the situation first, ahead of the
relationship, he is guaranteed to lose perspective. Project managers should be prepared to
struggle with the relationship, for the sake of achieving success. Sometimes, just trying to
prove that we are right sways us from our original intent. In any case, projects are not
about project managers; they are about achieving the objectives of that particular project.

Assessment of Tax Burden

The Taxation System

• Taxation - most successful for diverting funds to public institution

• attitude of citizens determines financial well-being of public institutions
• Taxation - function of three variables
➢ tax base
➢ assessment practices followed
➢ tax levy
• education-financed by government
➢ problem-equitable school programs and equitable tax burdens using
property tax system
• rate bills are obsolete
• taxes often unpopular
 Characteristics of a Good Tax System

• tax systems should be coordinated and balanced (local, state, federal)

• all citizens who receive benefits or stand to receive them should owe taxes
• tax burden distributed among all citizens equitably
➢ progressive income tax most equitable
➢ single tax cannot be fair to all
➢ taxation theory requires diversification with broad tax base
➢ maintenance of economic neutrality must not be disturbed
• adequacy of yield-taxes applied to productive sources
• progressive versus regressive taxes—at best progressive
• tax erosion should be minimized or eliminated
• taxpayer convenience important
• direct
• fairness and courtesy demonstrated
• low collection and administrative costs
• visible taxes and services
• tax shifting minimized
• minimal earmarking of taxes
• tax structure should avoid restrictions

Criteria for Evaluating Tax Structure

• McCann and Delon emphasized evaluation criteria

➢ efficiency in fiscal administration
➢ equity in treatment of citizens
➢ adequacy in providing funds
➢ adaptability related to economic conditions, social demands and
significant changes in education
Property Tax

• levied against owner of real or personal property

• real property not readily movable (lands, buildings, and improvements)
• personal property movable (tangibles or intangibles)
• first kinds of school taxes
• constitute almost all local tax revenue for schools
• usually expressed in mills per dollar of assessed valuation or dollars per hundred dollars
of assessed valuation
• some states use a tax rate on market value
• historically used for local school revenue
• desirable traits
• direct tax
• easily collected
• regulated and controlled by local boards of education within state law
• impossible to avoid paying
• highly productive
• highly visible
• assessment practices
• unequal assessment practices exist
• foundation program created underassessment
• assessment practices vary widely
• problems due to political system

• unfairness of property tax

➢ somewhat regressive when surplus earnings invested in personal property
➢ urban centers-eroded tax base
➢ urban centers-high cost students to education
➢ municipal overburden
➢ partial property ownership, but payment of full taxes on property
• other criticisms of property tax
➢ state-imposed tax rate restrictions
➢ court decisions resulting in adverse opinions of tax
➢ failed referenda
➢ state legislative actions
• circuit breakers
➢ protects certain classes of individuals from excessive property tax
 ➢ plans vary by state
• personal property taxes
➢ remains backbone of school finance
➢ problem with getting property assessed
➢ measure of wealth and taxpaying ability minimized as source of
revenue
Income Tax
• progressive tax levied on yearly income
• used to lesser degree by nearly all states
• should include taxes on personal and corporation incomes
• personal income tax erases regressive effects of property and sales taxes
Sales Tax
• levy imposed on sale value of certain goods and services
• no tax exclusion on necessities overburdens low income families
• growth of e-commerce-cause for sales tax changes
• e-commerce-currently taxed by federal, state and local government
• e-commerce results in revenue loss for state budgets/local education agencies
Sumptuary Tax
• imposed by government to regulate or control a certain activity or practice not deemed
in the public interest
• example—federal taxes on tobacco products
Severance Tax
• taxes imposed on removal of natural products from land or water
• measured by value or quantity of projects removed or sold
• examples—oil, gas, timber, fish, etc.
• tax imposed at time of extraction of product
• levies for privilege of removing product from ground or water
• levies-production, conservation or mining taxes
 Potential New Taxes
• site-value taxes-land tax on actual value of the land, whether improved or not
• value-added tax (VAT)-tax on value of goods at each transaction from productive to
consumption (multiple sales tax)
Lotteries
• lays taxes on the willing
• regressive-greater share comes from poor players’ income
• generated revue for schools varies by state from 2%-5%
Private Foundations
• reaches out to the private sector
• issues raised
➢ role of school officials in foundation and determining how money should
be spent
➢ successful foundations will result in reduced state aid
➢ gap will widen in the quality of education in rich and poor communities
School-Business Partnerships
• closely related to foundation movement
• types of partnerships
➢ special services
➢ classroom
➢ professional development
➢ management
➢ systematic educational improvement
➢ policy
• partnership concept-all striving for same goal—produce students prepared for the
future
 UNIT V
Behavioural aspects of Entrepreneur :
Personalities, in a study of organizational behavior do matter. So, what is personality? The
word personality comes from the Latin root persona, meaning "mask." According to this root,
personality is the impression we make on others; the mask we present to the world Personality is
defined as "a unique set of traits and characteristics, relatively stable over time." Clearly,
personality is unique insofar as each of us has our own personality, different from any other
person's. The definition further suggests that personality does not change from day to day. Over
the short-term, our personalities are relatively set or stable. However, definition does not suggest
that personality is somehow rigid, unchangeable, and cast in concrete. Definition recognizes that,
over a longer term, personality may change. To examine whether this change is indeed consistent
with most peoples' reality, we ought to examine "where personality comes from"; what are the
origins of personality?
THE ORIGINS OF PERSONALITY: THE NATURE-NURTURE DEBATE For
psychologists studying the development of personality, "nature vs. nurture" was a central debate.
"Nature vs. nurture" suggests that biology (a person's genes) and society (the environment in which
a person grows up) are competing developmental forces. In the past, the debate sought to find
whether one may be more important than the other. Today most psychologists would concede both
nature and nurture are necessary for personality development. Both help to make us who we are.
Determinants of Personality
Several factors influence the shaping of our personality. Major among these are
1. Heredity,
2. Culture,
3. Family Background,
4. Our Experiences through Life,
5. And The People we interact with.
There are some genetic factors that play a part in determining certain aspects of what we
tend to become. Whether we are tall or short, experience good health or ill health, are quickly
irritable or patient, are all characteristics which can, in many cases, be traced to heredity. How we
learn to handle others' reactions to us (eg.our appearance) and the inherited traits can also influence
how our personality is shaped.
Culture: The culture and the values we are surrounded by significantly tend to shape our personal
values and inclination. Thus, people born in different cultures tend to develop different types of
personalities which in turn significantly influence their behaviours. India being a vast country with
a rich diversity of cultural background provides a good study on this. For example, we have seen
that people in Gujarat are more enterprising than people from other states, Punjabees are more
diligent and hardworking, people from Bengal are more creative and with an intellectual bend and
the likes.
 Family Background: The socio-economic status of the family, the number of children in the
family and birth order, and the background and education of the parents and extended members of
the family such as uncles and aunts, influence the shaping of personality to a considerable extent.
First-borns usually have different experiences, during childhood than those born later; Members
in the family mould the character of all children, almost from birth, in several ways -by expressing
and expecting their children to conform to their own values, through role modeling, and through
various reinforcement strategies such as rewards and punishments which are judiciously
dispensed. Think of how your own personality has been shaped by your family background and
parental or sibling influences!
Experiences in Life: Whether one trusts or mistrusts others, is miserly or generous, have a high
or low self esteem and the like, is at least partially related to the past experiences the individual
has had. Imagine if someone came to you and pleaded with you to lend him Rs. 100 which he
promised to return in a week's time, and you gave it to him even though it was the last note you
had in your pocket to cover the expenses for the rest of that month. Suppose that the individual
never again showed his face to you and you have not been able to get hold of him for the past three
months. Suppose also that three such incidents happened to you with three different individuals in
the past few months. What is the probability that you would trust another person who comes and
asks you for a loan tomorrow? Rather low, one would think. Thus, certain personality
characteristics are moulded by frequently occurring positive or negative experiences in life.
People We Interact With "A Person is known by the company he or she keeps" is a common
adage. The implication is that people persuade each other and tends to associate with members
who are more like them in their attitudes and values. Beginning childhood, the people we interact
with influence us. Primarily our, parents and siblings, then our teachers and class mates, later our
friends and colleagues, and so on. The influence of these various individuals and groups shapes
our personality. For. Instance, if we are to be accepted as members of our work group, we have to
conform to the values of that group which mayor may not always be palatable to us; if we don't,
we will not be treated as valued members of the group. Our desire to be a part of the group and
belong to it as its member, will compel many of us to change certain aspects of our personality
(for instance, we may have to become less aggressive, more cooperative, etc.). Thus, our
personality becomes shaped throughout our lives by at least some of the people and groups we
interact with. In summary, our personality is a function of both heredity and other external factors
that shape it. It is important to know what specific personality predispositions influence work
behaviors.
PERSONALITY THEORIES
Traits Theory : The traditional approach of understanding personality was to identify and describe
personality in terms of traits. In other words, it viewed personality as revolving around attempts to
identify and label permanent characteristics that describe an individual's behavior.
Popular characteristics or traits include shyness, aggressiveness,
submissiveness, laziness, ambition, loyalty, and timidity. This distinctiveness, when they are
exhibited in a large number of situations, are called personality traits. The more consistent the
characteristic and the more frequently it occurs in diverse situations, the more important that trait
is in describing the individual.
Early Search for Primary Traits :
Efforts to isolate traits have been stuck because there are so many of them. In one study, as many
as 17,953 individual traits were identified. It is virtually impossible to predict behavior when such
a large number of traits must be taken into account. As a result, attention has been directed toward
reducing these thousands to a more manageable number. One researcher isolated 171 traits but
concluded that they were superficial and lacking in descriptive power. What he sought was a
reduced set of traits that would identify underlying patterns. The result was the identification of 16
personality factors by Cattell, which he called the source, or primary, traits. These 16 traits have
been found to be generally steady and constant sources of behavior, allowing prediction of an
individual's behavior in specific situations by weighing the characteristics for their situational
relevance. Based on the answers individual gave they have been classified as on the basis of the
answers individuals give to the test, they are classified as:
1. Extroverted Or Introverted (E Or I),
2. Sensing Or Intuitive (S Or N),
3. Thinking Or Feeling (T Or F), And
4. Perceiving Or Judging (P Or J).
These classifications are then combined into 16 personality types.
Can Personality be measured? :If we wish to measure the current in a electric circuit, we can
insert an ammeter into the circuit. If we wish to measure the weight of some substance, we simply
place that substance on scales designed to measure weight. What about personality? Unfortunately,
we cannot directly "measure" personality. But if we cannot directly observe the seemingly
unconscious, how do we know it exists?
The answer to the question lies in the fact that we can, in fact, directly observe behaviors. As
students of human behavior, we are then left to infer personality from the behaviors it manifests.
Psychologists thus use behavioral indicators in constructing projective tests. These
tests are designed to draw conclusions about personality from observed behaviors.
There are various standard tests and scales available to measure personality. In the following
section we will be describing a few of these.
Thematic Apperception Test (TAT) :It is a projective test that offers more validity. The TAT
consists of drawings or photographs of real-life situations. People taking the test are instructed to
construct stories based on these images, and trained raters then score the recorded story for
predefined themes. Psychologists assume that the stories people tell reflect the unconscious.
Myers-Briggs Types Indicator (MBTI) was originally developed by a mother & daughter team
which have the following components.
INTJs are visionaries. They usually have original minds and great drive for their own ideas and
purposes. They are characterized as skeptical, critical, independent, determined, and often
stubborn.
ESTJs are organizers. They are realistic, logical, analytical, decisive, and have a natural head for
business or mechanics. They like to organize and run activities.
The ENTP type is conceptualizer. He or she is pioneering, individualistic, versatile, and attracted
to entrepreneurial ideas. This person tends to be resourceful in solving challenging problems but
may neglect routine assignments. A recent book that profiled 13 contemporary businesspeople
who created super successful firms including Apple Computer, Federal Express, Honda Motors,
Microsoft and Sony found that all 13 are intuitive thinkers (NTS).lZ
This result is predominantly interesting because intuitive thinkers represent only about 5 percent
of the population. More than 2 million people a year take the MBTI in the United States alone.
Organizations using the MBTI include Apple Computer, AT&T, Citicorp, Exxon, GE, 3M Co.,
plus many hospitals, educational institutions, and even the U.S. Armed Forces.
The Big Five Model MBTI may be deficient in valid supporting evidence, but that can't be said
for the fivefactor model of personality 'more typically called the Big Five. In contemporary, an
impressive body of research supports that five basic dimensions. motivate all others and
encompass most of the significant variation in human personality .
The Big Five factors are:
• Extraversion. This dimension captures one's comfort level with relation ships. Extraverts tend to
be gregarious, assertive, and sociable. Introverts tend to be reserved, timid, and quiet
. • Agreeableness. This dimension refers to an individual's tendency to defer to others. Highly
agreeable people are cooperative, affectionate, and trusting. People who score low on
agreeableness are cold, disagreeable, and antagonistic.
• Conscientiousness. This dimension is a measure of reliability. A highly conscientious person is
responsible, organized, dependable, and persistent. Those who score low on this dimension are
easily distracted, disorganized, and unreliable.
• Emotional stability. This dimension taps a person's ability to bear up stress. People with positive
emotional stability tend to be calm, self-confident, and secure. Those with highly negative scores
tend to be nervous, anxious, Depressed, and insecure.
• Openness to experience. The final dimension addresses an individual's range of interests and
fascination with novelty. Extremely open people are creative, curious, and artistically sensitive.
Those at the other end of the open- ness category are conventional and find comfort in the familiar.

Successful entrepreneurs, from Henry Ford to Steve Jobs, share similar qualities with one
another.
1. Strong leadership qualities
Leaders are born, not made. Do you find yourself being the go-to person most of the time? Do
you find people asking your opinion or to help guide or make decisions for them? Have you been
in management roles throughout your career? A leader is someone who values the goal over any
unpleasantness the work it takes to get there may bring. But a leader is more than just tenacious.
A leader has strong communication skills and the ability to amass a team of people toward a
common goal in a way that the entire team is motivated and works effectively to get there as a
team. A leader earns the trust and respect of his team by demonstrating postive work qualities
and confidence, then fostering an environment that proliferates these values throught the team. A
leader who nobody will follow is not a leader of anything at all.
2. Highly self-motivated
You probably know from knowing even a little bit about some of the most famous business
entrepreneurs in history that leaders are typically pretty intense personalities. Nobody makes
progress by sitting back and waiting for it to find them. Successful people go out into the world
and invoke change throught their actions. Typically, leaders enjoy challenges and will work
tirelessly to solve problems that confront them. They adapt well to changing situations without
unraveling and are typically expert of helping their teams change with them by motivating them
toward new goals and opportunities. Often you will learn that successful entrepreneurs are driven
by a more complete vision or goal than simply the task at hand and able to think on a more
universal level in that regard. They are also often very passionate about their ideas that drive
toward these ultimate goals and are notoriously difficult to steer off the course.
3. Strong sense of basic ethics and integrity
Business is sustainable because there is a common, understood code of ethics universally that
underpins the very fabric upon which commerce is conducted. While cheaters and thieves may
win in the short term, they invariably lose out in the long run. You will find that successful,
sustainable business people maintain the highest standards of integrity becauase, at the end of the
day, if you cannot prove yourself a credible business person and nobody will do business with
you, you are out of business. With importance in working with clients or leading a team,
effective leaders admit to any error made and offer solutions to correct rather than lie about,
blame others for, or dwell on the problem itself.
4. Willingness to fail
Successful entrepreneurs are risk takers who have all gotten over one very significant
hurdle: they are not afraid of failure. That's not to say that they rush in with reckless
abandon. In fact, entrepreneurs are often successful because they are calculating and able to
make the best decisions in even the worst of cases. However, they also accept that, even if they
make the best decision possible, things don't always go according to plan and may fail anyhow.
If you've heard the old adage, "nothing ventured, nothing gained," that's exactly what it's saying:
do not be afraid to fail, put it out there and give it your best shot. Again, there's not one
successful entrepreneur out there sitting on his couch asking, "what if?"
5. Serial innovators
Entrepreneurs are almost defined by their drive to constantly develop new ideas and improve on
existing processes. In fact, that's how most of them got into business in the first place. Successful
people welcome change and often depend on it to improve their effectiveness as leaders and
ultimately the success of their businesses as many business concepts rely on improving products,
services and processes in order to win business.
6. Know what you don't know
While successful entrepreneurs are typically strong personalities overall, the best have learned
that there's always a lesson to be learned. They are rarely afraid to ask questions when it means
the answers will provide them insight they can then leverage to effect. Successful entrepreneurs
are confident, but not egotistical to the point that their bull-headedness is a weakness that
continually prohibits them from seeing a bigger picture and ultimately making the best decisions
for the business.
7. Competitive spirit
Entrepreneurs enjoy a challenge and they like to win. They would have to since starting a
business is pretty much one of the biggest challenges a person can take on in their lifetime. In
business it's a constant war with competition to win business and grow market share. It's also a
personal challenge to use all of this to focus inward and grow a business from nothing into a
powerhouse that either makes a lot of money or is so effective that it is sold or acquired for a
profit as well.
8. Understand the value of a strong peer network
In almost every case, entrepreneurs never get to success alone. The best understand it takes a
network of contacts, business partners, financial partners, peers and resources to succeed.
Effective people nurture these relationships and surround themselves with people who can help
make them more effective. Any good leader is only as good as those who support him.

Leadership concepts and models:

What is Leadership
Leadership is a process by which an executive can direct, guide and influence the behavior and
work of others towards accomplishment of specific goals in a given situation. Leadership is the
ability of a manager to induce the subordinates to work with confidence and zeal.

Leadership is the potential to influence behaviour of others. It is also defined as the capacity to
influence a group towards the realization of a goal. Leaders are required to develop future
visions, and to motivate the organizational members to want to achieve the visions.

According to Keith Davis, “Leadership is the ability to persuade others to seek defined
objectives enthusiastically. It is the human factor which binds a group together and motivates it
towards goals.”

The Nature of Leadership

There are two main approaches to leadership- traitist and situationist.In the early times leadership
was considered to originate from the personal qualities of the leader and insufficient attention was
given to the contribution of the group structure and situation. The early studies focused their
attention on certain traits to compare leaders with non leaders.

Gibb remarked that the leader traits are relative to a specific social situation and are not exhibited
in isolation. He pointed out that attempts to find a consistent pattern of traits that characterize
leaders had failed and said that the attributes of leadership are any or all of those personality
characteristics that in any particular situation make it possible for a person either to contribute to
achievement of a group goal or to be seen as doing so by other group members. The person who
becomes a leader surpasses others in some qualities required by the goal in the particular situation.
He writes leadership is both a function of these two interactions.

The situationist approach to leadership provides a corrective to the traitist approach which regarded
leaders as uniquely superior individuals who would lead in whatever situation or time they might
find themselves. This approach emphasizes that leadership is specific to a specific situation. It is a
way of behaving exhibited by individuals in differing degrees in different situations. A leader in
one group is not necessarily a leader in another. A leader in the class may not be a leader in the
playground. Though leadership may be considered as behavior specific to a given situation yet it
does not mean that there is no generality of traits on the basis of which certain persons may be
rated leaders.

Carter noted that if leadership is absolutely specific to a given situation then it cannot be a subject
of scientific analysis and generalization. Leader is necessarily a part of a group and leadership is
status and role in that group. It is obvious that leadership can occur only in relation to other people.
No one can be a leader all by himself. The relationships which the leader bears to other individuals
are status and role relationships. He is part of the group structure and as such he carries on
reciprocal relationship with other members of the group. These relationships define his role in the
group. When leadership is viewed as a status in a group structure and a role defined by reciprocal
relations with others in the particular structure it is easy to understand why there cannot be a
generalization of traits characteristic of leaders.

Characteristics of Leadership

1. It is a inter-personal process in which a manager is into influencing and guiding workers

towards attainment of goals.
2. It denotes a few qualities to be present in a person which includes intelligence, maturity
and personality.
3. It is a group process. It involves two or more people interacting with each other.
4. A leader is involved in shaping and moulding the behaviour of the group towards
accomplishment of organizational goals.
5. Leadership is situation bound. There is no best style of leadership. It all depends upon
tackling with the situations.

Leadership can be defined as one's ability to get others to willingly follow. Every organization
needs leaders at every level. Leaders can be found and nurtured if you look for the following
character traits.
A leader with vision has a clear, vivid picture of where to go, as well as a firm grasp on
what success looks like and how to achieve it. But it’s not enough to have a vision; leaders must
also share it and act upon it. Jack Welch, former chairman and CEO of General Electric Co.,
said, "Good business leaders create a vision, articulate the vision, passionately own the vision
and relentlessly drive it to completion."

A leader must be able to communicate his or her vision in terms that cause followers to buy into
it. He or she must communicate clearly and passionately, as passion is contagious.
A good leader must have the discipline to work toward his or her vision single-mindedly, as well
as to direct his or her actions and those of the team toward the goal. Action is the mark of a
leader. A leader does not suffer “analysis paralysis” but is always doing something in pursuit of
the vision, inspiring others to do the same.

Integrity is the integration of outward actions and inner values. A person of integrity is the same
on the outside and on the inside. Such an individual can be trusted because he or she never veers
from inner values, even when it might be expeditious to do so. A leader must have the trust of
followers and therefore must display integrity.

Honest dealings, predictable reactions, well-controlled emotions, and an absence of tantrums and
harsh outbursts are all signs of integrity. A leader who is centered in integrity will be more
approachable by followers.

Dedication means spending whatever time or energy is necessary to accomplish the task at hand.
A leader inspires dedication by example, doing whatever it takes to complete the next step
toward the vision. By setting an excellent example, leaders can show followers that there are no
nine-to-five jobs on the team, only opportunities to achieve something great.

Magnanimity means giving credit where it is due. A magnanimous leader ensures that credit for
successes is spread as widely as possible throughout the company. Conversely, a good leader
takes personal responsibility for failures. This sort of reverse magnanimity helps other people
feel good about themselves and draws the team closer together. To spread the fame and take the
blame is a hallmark of effective leadership.

Leaders with humility recognize that they are no better or worse than other members of the
team. A humble leader is not self-effacing but rather tries to elevate everyone. Leaders with
humility also understand that their status does not make them a god. Mahatma Gandhi is a role
model for Indian leaders, and he pursued a “follower-centric” leadership role.

Openness means being able to listen to new ideas, even if they do not conform to the usual way
of thinking. Good leaders are able to suspend judgment while listening to others’ ideas, as well
as accept new ways of doing things that someone else thought of. Openness builds mutual
respect and trust between leaders and followers, and it also keeps the team well supplied with
new ideas that can further its vision.

Creativity is the ability to think differently, to get outside of the box that constrains
solutions. Creativity gives leaders the ability to see things that others have not seen and thus lead
followers in new directions. The most important question that a leader can ask is, “What if … ?”
Possibly the worst thing a leader can say is, “I know this is a dumb question ... ”

Fairness means dealing with others consistently and justly. A leader must check all the facts and
hear everyone out before passing judgment. He or she must avoid leaping to conclusions based
on incomplete evidence. When people feel they that are being treated fairly, they reward a leader
with loyalty and dedication.
 Assertiveness is not the same as aggressiveness. Rather, it is the ability to clearly state what one
expects so that there will be no misunderstandings. A leader must be assertive to get the desired
results. Along with assertiveness comes the responsibility to clearly understand what followers
expect from their leader.

Many leaders have difficulty striking the right amount of assertiveness, according to a study in
the February 2007 issue of the Journal of Personality and Social Psychology, published by the
APA (American Psychological Association). It seems that being underassertive or overassertive
may be the most common weakness among aspiring leaders.

A sense of humor is vital to relieve tension and boredom, as well as todefuse hostility. Effective
leaders know how to use humor to energize followers. Humor is a form of power that provides
some control over the work environment. And simply put, humor fosters good camaraderie.

Intrinsic traits such as intelligence, good looks, height and so on are not necessary to become a
leader. Anyone can cultivate the proper leadership traits.
Leadership Theories

1. Naturalistic theories

Naturalistic theories of leadership were the first to develop. They were built on the idea that
leaders were born, not made.

The earliest naturalistic theory was not really a theory as such, just a set of beliefs and
assumptions. Every so often a society or culture threw up a great person who provided
outstanding leadership. Just think of these examples:

• Jesus Christ, the Messiah promised to the Jews.

• King Arthur, a king who will unite Britain, defeat its foes and return when needed.
• William Wallace, the liberator of Scotland against the English.
• Abraham Lincoln, Who ended slavery in the USA.
• Ghandi, the peace maker who held together the fragile alliance in India at the time of
independence.

At the time that people believed this explanation of leadership, in most societies the great leader
was normally a man. One example of an exception was Boudicca, the queen of the Icene in
ancient Britain.

The belief or assumption was that such greatness could not have been learned but was inherent,
part of their genetic make up. It was probably hereditary (or so it was believed)! This is one
reason why ruling or aristocratic families emerged.

As the scientific method began to be applied to psychology, the study of human behaviour, a new
naturalistic approach to leadership theories emerged – trait theory.
The trait theory of leadership still assumes that leaders are born, not made. But it sought to
identify those personality traits associated with the best leaders, to help understand leadership
and to identify people who, ahving the same traits, could (it was assumend) make good leaders.
Trait theory still has its adherents.

2. Functional leadership theories

Functional leadership theories are based on very different assumptions. They focus on what
leaders actually do. That is, their actions or functions.

One of the best known and most influential of functional theories of leadership, used in many
leadership training programmes, is John Adair's"Action-Centred Leadership".

From here it is a short leap to the belief that if one person can do something, then others can
learn to do it. We are now in the world of leaders being made, not born. And we open up the
possibility of leadership development and planned leadership training.

This question of whether leaders are born or made is part of the whole question of whether
human behaviour is due to nature or nurture .

Functional theories of leadership are developed by studying successful leaders and identifying
the actions and behaviours they show. Large studies with lost of data make it possible to
correlate the actions with the successful results.

3. Situational leadership theories

Functional leadership is all very well but it doesn’t help us to deal with changes, different
situations and the nature of the people being led.

Situational theories of leadership were developed to find good ways of adapting leadership
actions to meet the needs of different situations and circumstances.

One classic situational model of leadership is concerned with identifying the ability (or
competence) and willingness (commitment or motivation) of those being led, and then
determining the best style of leadership to follow. Other approaches suggest of continuums of
leadership style.

Leadership style here refers to the broad approach adopted by a leader. A leader's style of
leadership is often based on a leader’s own beliefs, personality, experiences, working
environment and the situation at the time. Some leaders work within one leadership style. Others
are more flexible and can adapt their style of leadership to meet the needs of different situations.

4. Autocratic vs Participative leadership theories

These theories of leadership developed out of the concept of leadership style. However, they
focus very much on the balance of power between the leader and the followers.

Autocratic leaders tend to make decisions and impose them on others. They often believe that
they are best placed to make the decisions, that others should accept their authority. Some such
leaders have certain personality traits, such as a need to be in control of situations. Autocratic
leadership is suited to certain situations, such as emergencies or time critical circumstances. But
they don’t tend to nurture other people or get the best results from followers who are capable and
motivated.

Participative leaders consult others and involve them in the decision making process. They may
make the final decision but in consulting others they are demonstrating consideration, respect for
others and the ability to listen. The assumption behind this approach is that it tends to be
appreciated by followers who return the favour by being loyal and committed. Participative
leadership also develops other people and builds support for the overall direction, leading to a
shared vision and common goals.

Participative leaders often also adopt a facilitative leadership style. That is, they empower and
encourage others to take make decisions, take action and act with authority, normally within
defined boundaries.

5. Transactional vs Transformational leadership theories

Another way of looking at leadership approaches is to do with the type of work and the
relationship between the leader and the follower.Transactional leadership theory is based on
transactions or exchanges between the leader and the follower. It assumes that the working
relationship is one where the leader issues the work, praises or criticises, rewards or punishes.

The follower has little responsibility, other than doing as they are required, correctly. All works
well if both leader and follower carry out their part in the transactions as expected.

This approach is more often seen in low skilled jobs, where procedures are clearly defined or
where there is little change.

Transformational leadership theory is all about change. Transformational leaders inspire others
to follow a vision. They create opportunities for people to show flair and to take responsibility
for new ideas.

They are often very extravert, charismatic and strategic. They see the big picture rather than the
detail. They inspire great loyalty, providing they succeed. If they fail, or are seen to be
hypocritical, the followers may well become disillusioned or cynical.

Transformational leadership is more appropriate in fast changing situations, where people have
high levels of skill and where the leader can afford to get involved in the detail.

6. Moral leadership
 Moral approaches to leadership emphasise the role of the leader in various moralistic positions,
such as:

• making the world a better place

• treating people well
• caring for the environment
• religious beliefs
• being true to, and acting consistently with, one’s vision.

Various leadership writers have included moral elements in their work. They tend to suggest that
leaders are more likely to be successful if they have a positive impact on others - rather than lead
others just to benefit themselves.

Politicians and religious leaders, in particular, are expected to be moral leaders, partly because
they address the issues above or adopt a moralistic platform.

Business leaders are perhaps expected to be less moralistic. However, when they do truly act for
the good of others in general, and not just themselves and their shareholders, they tend to be
highly regarded.

Related to moralistic leadership is the idea of leadership ethics, which are largely to do with the
relationship between the leader and their followers.

Personal values, belief and attitudes

As human beings, we all have our own values, beliefs and attitudes that we have developed
throughout the course of our lives. Our family, friends, community and the experiences we have
had all contribute to our sense of who we are and how we view the world. As community
services workers, we are often working with people who are vulnerable and/or who may live a
lifestyle that mainstream society views as being different or unacceptable. If, as community
services workers, we are to provide a service that meets the needs of our target groups and helps
them to feel empowered, we need to be aware of our own personal values, beliefs and attitudes
and be prepared to adopt the professional values of our industry—and not impose our own ideas
on our clients.
What are values?
Values are principles, standards or qualities that an individual or group of people hold in high
regard. These values guide the way we live our lives and the decisions we make. A value may be
defined as something that we hold dear, those things/qualities which we consider to be of worth.
A ‘value’ is commonly formed by a particular belief that is related to the worth of an idea or type
of behaviour. Some people may see great value in saving the world’s rainforests. However a
person who relies on the logging of a forest for their job may not place the same value on the
forest as a person who wants to save it.
Values can influence many of the judgments we make as well as have an impact on the support
we give clients. It is important that we do not influence client’s decisions based on our values.
We should always work from the basis of supporting the client’s values.

Where do values come from?

Our values come from a variety of sources. Some of these include:
• family
• peers (social influences)
• the workplace (work ethics, job roles)
• educational institutions such as schools or TAFE
• significant life events (death, divorce, losing jobs, major accident and trauma, major
health issues, significant financial losses and so on)
• religion
• music
• media
• technology
• culture
• major historical events (world wars, economic depressions, etc).

Dominant values
Dominant values are those that are widely shared amongst a group, community or culture. They
are passed on through sources such as the media, institutions, religious organisations or family,
but remember what is considered dominant in one culture or society will vary to the next.
Using the sources listed above, some of your values could be:
• family—caring for each other, family comes first
• peers—importance of friendship, importance of doing things that peers approve of
• workplace—doing your job properly; approving/disapproving of ‘foreign orders’
(doing home-related activities in work time or using work resources for home
related activities)
• educational institutions—the valuing or otherwise of learning; value of self in
relation to an ability to learn (this often depends on personal experience of
schooling, whether positive or negative)
• significant life events—death of loved ones and the impact on what we value as
being important; marriage and the importance and role of marriage and children;
 separation and divorce and the value change that may be associated with this
(valuing of self or otherwise)
• religion—beliefs about ‘right and wrong’ and beliefs in gods
• media—the impact of TV, movies, radio, the Internet and advertising on what is
important in our lives, what is valued and not valued
• music—music often reflects what is occurring in society, people’s response to
things such as love and relationships which may then influence the development of
our values
• technology—the importance of technology or otherwise; the importance of
computers and developing computer skills
• culture—a cultural value such as the importance of individuality as opposed to
conforming to groups
• major historical events—not wasting anything, saving for times of draught, valuing
human life, patriotic values.
It is important that you develop an awareness of what you value, as these values will be
important in informing your relationships with clients, co–workers and employers.

What is a belief?
Beliefs come from real experiences but often we forget that the original experience is not the
same as what is happening in life now. Our values and beliefs affect the quality of our work and
all our relationships because what you believe is what you experience. We tend to think that our
beliefs are based on reality, but it is our beliefs that govern our experiences.
The beliefs that we hold are an important part of our identity. They may be religious, cultural or
moral. Beliefs are precious because they reflect who we are and how we live our lives.

Pre-existing beliefs
As a care worker in the community services industry, the pre-existing beliefs you may have
could be related to stereotypes that have developed for you around issues like sexuality, alcohol
and other drugs, ageing and disabilities, independence, health, the rights of people, your idea of
health and what it’s like to be older and/or disabled.
These stereotypes could affect the way you interact and work with clients. This is because you
have assumptions about what your clients can and can’t do for themselves, the way they should
think about issues and what is best for them. If you make assumptions as a worker then you are
denying clients their rights, respect and dignity. As a worker this would be regarded as a breach
in your duty of care towards clients.
The need for older people and people with disabilities to express their sexuality does not
necessarily diminish over time. The desire for intimacy can in fact intensify. The development of
new relationships may occur as a result of living in a residential care setting or as people’s social
networks change over time. The right to express sexuality is a quality of life issue and is part of
one’s self-identity. The way people choose to express their sexuality may change over time in a
variety of ways. Intimate relationships enhance a person’s quality of life and contribute to their
feelings of well being. As a care worker it is important to respect a person’s right to express their
sexuality in a way which is appropriate for them.
What is an attitude?

Attitudes
Introduction. Consumer attitudes are a composite of a consumer’s (1) beliefs about, (2) feelings
about, (3) and behavioral intentions toward some object--within the context of marketing, usually
a brand or retail store. These components are viewed together since they are highly
interdependent and together represent forces that influence how the consumer will react to the
object.

Beliefs. The first component is beliefs. A consumer may hold both positive beliefs toward an
object (e.g., coffee tastes good) as well as negative beliefs (e.g., coffee is easily spilled and stains
papers). In addition, some beliefs may be neutral (coffee is black), and some may be differ in
valance depending on the person or the situation (e.g., coffee is hot and stimulates--good on a
cold morning, but not good on a hot summer evening when one wants to sleep). Note also that
the beliefs that consumers hold need not be accurate (e.g., that pork contains little fat), and some
beliefs may, upon closer examination, be contradictory (e.g., that a historical figure was a good
person but also owned slaves).

Since a consumer holds many beliefs, it may often be difficult to get down to a “bottom line”
overall belief about whether an object such as McDonald’s is overall good or bad. The
Multiattribute (also sometimes known as the Fishbein)

Affect. Consumers also hold certain feelings toward brands or other objects. Sometimes these
feelings are based on the beliefs (e.g., a person feels nauseated when thinking about a hamburger
because of the tremendous amount of fat it contains), but there may also be feelings which are
relatively independent of beliefs. For example, an extreme environmentalist may believe that
cutting down trees is morally wrong, but may have positive affect toward Christmas trees
because he or she unconsciously associates these trees with the experience that he or she had at
Christmas as a child.
Behavioral Intention. The behavioral intention is what the consumer plans to do with respect to
the object (e.g., buy or not buy the brand). As with affect, this is sometimes a logical
consequence of beliefs (or affect), but may sometimes reflect other circumstances--e.g., although
a consumer does not really like a restaurant, he or she will go there because it is a hangout for his
or her friends.

Attitude-Behavior Consistency. Consumers often do not behave consistently with their

attitudes for several reasons:

▪ Ability. He or she may be unable to do so. Although junior high school student likes
pick-up trucks and would like to buy one, she may lack a driver’s license.
▪ Competing demands for resources. Although the above student would like to buy a
pickup truck on her sixteenth birthday, she would rather have a computer, and has money
for only one of the two.
▪ Social influence. A student thinks that smoking is really cool, but since his friends think
it’s disgusting, he does not smoke.
▪ Measurement problems. Measuring attitudes is difficult. In many situations, consumers
do not consciously set out to enumerate how positively or negatively they feel about
mopeds, and when a market researcher asks them about their beliefs about mopeds, how
important these beliefs are, and their evaluation of the performance of mopeds with
respect to these beliefs, consumers often do not give very reliable answers. Thus, the
consumers may act consistently with their trueattitudes, which were never uncovered
because an erroneous measurement was made.

Attitude Change Strategies. Changing attitudes is generally very difficult, particularly when
consumers suspect that the marketer has a self-serving agenda in bringing about this change
(e.g., to get the consumer to buy more or to switch brands).

Changing affect. One approach is to try to change affect, which may or may not involve getting
consumers to change their beliefs. One strategy uses the approach of classical conditioning try
to “pair” the product with a liked stimulus. For example, we “pair” a car with a beautiful
woman. Alternatively, we can try to get people to like the advertisement and hope that this
liking will “spill over” into the purchase of a product. For example, the Pillsbury Doughboy
does not really emphasize the conveyance of much information to the consumer; instead, it
attempts to create a warm, fuzzy image. Although Energizer Bunny ads try to get people to
believe that their batteries last longer, the main emphasis is on the likeable bunny. Finally,
products which are better known, through the mere exposure effect, tend to be better liked--that
is, the more a product is advertised and seen in stores, the more it will generally be liked, even if
consumers to do not develop any specific beliefs about the product.

Changing behavior. People like to believe that their behavior is rational; thus, once they use our
products, chances are that they will continue unless someone is able to get them to switch. One
way to get people to switch to our brand is to use temporary price discounts and coupons;
however, when consumers buy a product on deal, they may justify the purchase based on that
deal (i.e., the low price) and may then switch to other brands on deal later. A better way to get
people to switch to our brand is to at least temporarily obtain better shelf space so that the
product is more convenient. Consumers are less likely to use this availability as a rationale for
their purchase and may continue to buy the product even when the product is less conveniently
located. (Notice, by the way, that this represents a case of shaping).

Changing beliefs. Although attempting to change beliefs is the obvious way to attempt attitude
change, particularly when consumers hold unfavorable or inaccurate ones, this is often difficult
to achieve because consumers tend to resist. Several approaches to belief change exist:

1. Change currently held beliefs. It is generally very difficult to attempt to change beliefs
that people hold, particularly those that are strongly held,even if they are inaccurate. For
example, the petroleum industry advertised for a long time that its profits were lower than
were commonly believed, and provided extensive factual evidence in its advertising to
support this reality. Consumers were suspicious and rejected this information, however.
2. Change the importance of beliefs. Although the sugar manufacturers would undoubtedly
like to decrease the importance of healthy teeth, it is usually not feasible to make beliefs
less important--consumers are likely to reason, why, then, would you bother bringing
them up in the first place? However, it may be possible to strengthen beliefs that favor
us--e.g., a vitamin supplement manufacturer may advertise that it is extremely important
for women to replace iron lost through menstruation. Most consumers already agree with
this, but the belief can be made stronger.
3. Add beliefs. Consumers are less likely to resist the addition of beliefs so long as they do
not conflict with existing beliefs. Thus, the beef industry has added beliefs that beef (1) is
convenient and (2) can be used to make a number of creative dishes. Vitamin
manufacturers attempt to add the belief that stress causes vitamin depletion, which
sounds quite plausible to most people.
4. Change ideal. It usually difficult, and very risky, to attempt to change ideals, and only
few firms succeed. For example, Hard Candy may have attempted to change the ideal
away from traditional beauty toward more unique self expression.

One-sided vs. two-sided appeals. Attitude research has shown that consumers often tend to
react more favorably to advertisements which either (1) admit something negative about the
sponsoring brand (e.g., the Volvo is a clumsy car, but very safe) or (2) admits something positive
about a competing brand (e.g., a competing supermarket has slightly lower prices, but offers less
service and selection). Two-sided appeals must, contain overriding arguments why the
sponsoring brand is ultimately superior--that is, in the above examples, the “but” part must be
emphasized.

The Elaboration Likelihood Model (ELM) and Celebrity Endorsements. The ELM suggests
that consumers will scrutinize claims more in important situations than in unimportant ones. For
example, we found that in the study of people trying to get ahead of others in a line to use photo
copiers, the compliance rate was about fifty percent when people just asked to get
ahead. However, when the justification “... because I have to make copies” was added,
compliance increased to 80%. Since the reason offered really did not add substantive
information, we conclude that it was not extensively analyzed--in the jargon of the theory,
“elaboration” was low.
The ELM suggests that for “unimportant” products, elaboration will be low, and thus Bill Cosby
is able to endorse Coke and Jell-O without having any special credentials to do so. However, for
products which are either expensive or important for some other reason (e.g., a pain reliever
given to a child that could be harmed by using dangerous substances), elaboration is likely to be
more extensive, and the endorser is expected to be “congruent,” or compatible, with the
product. For example, a basket ball player is likely to be effective in endorsing athletic shoes,
but not in endorsing automobiles. On the other hand, a nationally syndicated auto columnist
would be successful in endorsing cars, but not athletic shoes. All of them, however, could
endorse fast food restaurants effectively.

Appeal Approaches. Several approaches to appeal may be used. The use ofaffect to
induce empathy with advertising characters may increase attraction to a product, but may
backfire if consumers believe that people’s feelings are being exploited. Fear appeals appear to
work only if (1) an optimal level of fear is evoked--not so much that people tune it out, but
enough to scare people into action and (2) a way to avoid the feared stimulus is explicitly
indicated--e.g., gingivitis and tooth loss can be avoided by using this mouth
wash. Humor appears to be effective in gaining attention, but does not appear to increase
persuasion in practice. In addition, a more favorable attitude toward the advertisement may be
created by humorous advertising, which may in turn result in increased sales. Comparative
advertising, which is illegal in many countries, often increases sales for the sponsoring brand,
but may backfire in certain cultures.

The influence of attitudes

Our attitudes develop over time and not only reflect where we have come from i.e. the influence
family, friends and experiences have had on our attitudes, but also how we will proceed with our
life in the future. Attitudes are therefore a powerful element in our life, are long enduring and
hard to change—but not impossible!

The problem with attitudes

One of the problems with our attitudes is we often ignore any information which is not consistent
with them—we become selective in the way we perceive and respond to events and issues—and
lose our ‘objectivity’ about the world. By developing insights about our attitudes we reduce the
risk of making decisions at work based on our unconscious, pre-existing perceptions, allowing us
work more professionally with clients.

Awareness of personal attitudes

It is good practice to think about your attitudes and beliefs: it helps you to understand yourself
better. It is beneficial to reflect on your life, identify some of the significant events that have
shaped you, consider what qualities you admire in yourself and others and be mindful of what
values and are important to you.
MOTIVATION
Overview

At a simple level, it seems obvious that people do things, such as go to work, in order to get stuff
they want and to avoid stuff they don't want.

Why exactly they want what they do and don't want what they don't is still something a mystery.
It's a black box and it hasn't been fully penetrated.

Overall, the basic perspective on motivation looks something like this:

In other words, you have certain needs or wants (these terms will be used interchangeably), and
this causes you to do certain things (behavior), which satisfy those needs (satisfaction), and this
can then change which needs/wants are primary (either intensifying certain ones, or allowing you
to move on to other ones).

A variation on this model, particularly appropriate from an experimenter's or manager's point of

view, would be to add a box labeled "reward" between "behavior" and "satisfaction". So that
subjects (or employees), who have certain needs do certain things (behavior), which then get
them rewards set up by the experimenter or manager (such as raises or bonuses), which satisfy
the needs, and so on.

Classifying Needs

People seem to have different wants. This is fortunate, because in markets this creates the very
desirable situation where, because you value stuff that I have but you don't, and I value stuff that
you have that I don't, we can trade in such a way that we are both happier as a result.

But it also means we need to try to get a handle on the whole variety of needs and who has them
in order to begin to understand how to design organizations that maximize productivity.
Part of what a theory of motivation tries to do is explain and predict who has which wants. This
turns out to be exceedingly difficult.

Many theories posit a hierarchy of needs, in which the needs at the bottom are the most urgent
and need to be satisfied before attention can be paid to the others.

Maslow

Maslow's hierarchy of need categories is the most famous example:

self-actualization

esteem

belongingness

safety

physiological

Specific examples of these types are given below, in both the work and home context. (Some of
the instances, like "education" are actually satisfiers of the need.)

Need Home Job

self- education, religion, hobbies,

training, advancement, growth, creativity
actualization personal growth

approval of family, friends,

esteem recognition, high status, responsibilities
community

teams, depts, coworkers, clients,

belongingness family, friends, clubs
supervisors, subordinates

freedom from war, poison, work safety, job security, health

safety
violence insurance

physiological food water sex Heat, air, base salary

According to Maslow, lower needs take priority. They must be fulfilled before the others are
activated. There is some basic common sense here -- it's pointless to worry about whether a
given color looks good on you when you are dying of starvation, or being threatened with your
life. There are some basic things that take precedence over all else.

Or at least logically should, if people were rational. But is that a safe assumption? According to
the theory, if you are hungry and have inadequate shelter, you won't go to church. Can't do the
higher things until you have the lower things. But the poor tend to be more religious than the
rich. Both within a given culture, and across nations. So the theory makes the wrong prediction
here.

Or take education: how often do you hear "I can't go to class today, I haven't had sex in three
days!"? Do all physiological needs including sex have to be satisfied before "higher"
needs? (Besides, wouldn't the authors of the Kama Sutra argue that sex was a kind of self-
expression more like art than a physiological need? that would put it in the self-actualization
box). Again, the theory doesn't seem to predict correctly.

Cultural critique: Does Maslow's classification really reflect the order in which needs are
satisfied, or is it more about classifying needs from a kind of "tastefulness" perspective, with
lofty goals like personal growth and creativity at the top, and "base" instincts like sex and hunger
at the bottom? And is self-actualization actually a fundamental need? Or just something that can
be done if you have the leisure time?

Alderfer's ERG theory

Alderfer classifies needs into three categories, also ordered hierarchically:

• growth needs (development of competence and realization of potential)

• relatedness needs (satisfactory relations with others)
• existence needs (physical well-being)

This is very similar to Maslow -- can be seen as just collapsing into three tiers. But maybe a bit
more rational. For example, in Alderfer's model, sex does not need to be in the bottom category
as it is in Maslow's model, since it is not crucial to (the individual's) existence. (Remember, this
about individual motivation, not species' survival.) So by moving sex, this theory does not
predict that people have to have sex before they can think about going to school, like Maslow's
theory does.

Alderfer believed that as you start satisfying higher needs, they become more intense (e.g., the
power you get the more you want power), like an addiction.

Do any of these theories have anything useful to say for managing businesses? Well, if true, they
suggest that

• Not everyone is motivated by the same things. It depends where you are in the hierarchy
(think of it as a kind of personal development scale)
 • The needs hierarchy probably mirrors the organizational hierarchy to a certain extent: top
managers are more likely to motivated by self-actualization/growth needs than existence
needs. (but try telling Bill Clinton that top executives are not motivated by sex and
cheeseburgers...)

Acquired Needs Theory (mcclellan)

Some needs are acquired as a result of life experiences

• need for achievement, accomplish something difficult. as kids encouraged to do things

for themselves.
• need for affiliation, form close personal relationships. as kids rewarded for making
friends.
• need for power, control others. as kids, able to get what they want through controlling
others.

Again similar to maslow and alderfer.

These needs can be measured using the TAT (thematic apperception test), which is a projection-
style test based on interpreting stories that people tell about a set of pictures.

Cognitive Evaluation Theory

This theory suggests that there are actually two motivation systems: intrinsic and extrinsic that
correspond to two kinds of motivators:

• intrinsic motivators: Achievement, responsibility and competence. motivators that come

from the actual performance of the task or job -- the intrinsic interest of the work.
• extrinsic: pay, promotion, feedback, working conditions -- things that come from a
person's environment, controlled by others.

One or the other of these may be a more powerful motivator for a given individual.

Intrinsically motivated individuals perform for their own achievement and satisfaction. If they
come to believe that they are doing some job because of the pay or the working conditions or
some other extrinsic reason, they begin to lose motivation.

The belief is that the presence of powerful extrinsic motivators can actually reduce a person's
intrinsic motivation, particularly if the extrinsic motivators are perceived by the person to be
controlled by people. In other words, a boss who is always dangling this reward or that stick will
turn off the intrinsically motivated people.

Note that the intrinsic motivators tend to be higher on the Maslow hierarchy.
Two Factor theory (Herzberg)

According to Herzberg, two kinds of factors affect motivation, and they do it in different ways:

• hygiene factors. These are factors whose absence motivates, but whose presence has no
perceived effect. They are things that when you take them away, people become
dissatisfied and act to get them back. A very good example is heroin to a heroin addict.
Long term addicts do not shoot up to get high; they shoot up to stop being sick -- to get
normal. Other examples include decent working conditions, security, pay, benefits (like
health insurance), company policies, interpersonal relationships. In general, these are
extrinsic items low in the Maslow/Alderfer hierarchy.
• motivators. These are factors whose presence motivates. Their absence does not cause
any particular dissatisfaction, it just fails to motivate. Examples are all the things at the
top of the Maslow hierarchy, and the intrinsic motivators.

So hygiene factors determine dissatisfaction, and motivators determine satisfaction. The two
scales are independent, and you can be high on both.

If you think back to the class discussion on power, we talked about a baseline point on the well-
being scale. Power involved a threat to reduce your well-being, causing dissatisfaction. Hence,
power basically works by threatening to withhold hygiene factors. Influence was said to
fundamentally be about promising improvements in well-being -- when you are influenced to do
something, it is because you want to, not because you were threatened. Influence basically works
by offering to provide motivators (in Herzberg's terms).

Equity Theory

Suppose employee A gets a 20% raise and employee B gets a 10% raise. Will both be motivated
as a result? Will A be twice as motivated? Will be B be negatively motivated?

Equity theory says that it is not the actual reward that motivates, but the perception, and the
perception is based not on the reward in isolation, but in comparison with the efforts that went
into getting it, and the rewards and efforts of others. If everyone got a 5% raise, B is likely to feel
quite pleased with her raise, even if she worked harder than everyone else. But if A got an even
higher raise, B perceives that she worked just as hard as A, she will be unhappy.

In other words, people's motivation results from a ratio of ratios: a person compares the ratio of
reward to effort with the comparable ratio of reward to effort that they think others are getting.

Of course, in terms of actually predicting how a person will react to a given motivator, this will
get pretty complicated:

1. People do not have complete information about how others are rewarded. So they are
going on perceptions, rumors, inferences.
2. Some people are more sensitive to equity issues than others
 3. Some people are willing to ignore short-term inequities as long as they expect things to
work out in the long-term.

Reinforcement Theory

Operant Conditioning is the term used by B.F. Skinner to describe the effects of the
consequences of a particular behavior on the future occurrence of that behavior. There are four
types of Operant Conditioning: Positive Reinforcement, Negative
Reinforcement, Punishment, and Extinction. Both Positive and Negative Reinforcement
strengthen behavior while both Punishment and Extinction weaken behavior.

• Positive reinforcement. Strengthening a behavior. This is the process of getting goodies

as a consequence of a behavior. You make a sale, you get a commission. You do a good
job, you get a bonus & a promotion.
• Negative reinforcement. Strengthening a behavior. This is the process of having a stressor
taken away as a consequence of a behavior. Long-term sanctions are removed from
countries when their human rights records improve. (you see how successful that is!).
Low status as geek at Salomon Brothers is removed when you make first big sale.
• Extinction. Weakening a behavior. This is the process of getting no goodies when do a
behavior. So if person does extra effort, but gets no thanks for it, they stop doing it.
• Punishment. Weakening a behavior. This is the process of getting a punishment as a
consequence of a behavior. Example: having your pay docked for lateness.

Apply Withhold

positive negative
reinforcement reinforcement
Reward
(raise above (raise up to
baseline) baseline)

punishment
extinction (stay
Stressor (bring down
at baseline)
below baseline)

Reinforcement schedules.

The traditional reinforcement schedule is called a continuous reinforcement schedule. Each

time the correct behavior is performed it gets reinforced.

Then there is what we call an intermittent reinforcement schedule. There are fixed and
variable categories.
The Fixed Interval Schedule is where reinforcement is only given after a certain amount of time
has elapsed. So, if you decided on a 5 second interval then each reinforcement would occur at the
fixed time of every 5 seconds.

The Fixed Ratio Schedule is where the reinforcement is given only after a predetermined
number of responses. This is often seen in behavior chains where a number of behaviors have to
occur for reinforcement to occur.

The Variable Interval Schedule is where the reinforcement is given after varying amounts of
time between each reinforcement.

The Variable Ratio Schedule is where the reinforcement is given after a varying number of
correct responses.

Fluctuating combinations of primary and secondary reinforcers fall under other terms in the
variable ratio schedule; For example, Reinforcers delivered Intermittently in a Randomized
Order (RIR) or Variable Ratio with Reinforcement Variety (VRRV).

Fixed Variable

give reward after give reward after

first proper a certain amt of
response time w/ the amt
following a changing before
Interval specified time the next reward
period
(unexpected
bonus based on
(yearly raise) merit)
[short term] [medium term]
give reward after
punishment a number of
(subtract from responses, w/
baseline) that no. changing
Ratio before the next
(commissions or reward
piecework pay)
(team-based
[medium term] bonus)
 [long term]

Expectancy Theory (Vroom)

This theory is meant to bring together many of the elements of previous theories. It combines the
perceptual aspects of equity theory with the behavioral aspects of the other theories. Basically, it
comes down to this "equation":

M = E*I*V

or

Motivation = expectancy * instrumentality * valence

M (motivation) is the amount a person will be motivated by the situation they find themselves in.
It is a function of the following.

E (expectancy) = the person's perception that effort will result in performance. In other words,
the person's assessment of the degree to which effort actually correlates with performance.

I (instrumentality) = the person's perception that performance will be rewarded/punished. I.e., the
person's assessment of how well the amount of reward correlates with the quality of
performance. (Note here that the model is phrased in terms of extrinsic motivation, in that it asks
'what are the chances I'm going to get rewarded if I do good job?'. But for intrinsic situations, we
can think of this as asking 'how good will I feel if I can pull this off?').

V (valence) = The perceived strength of the reward or punishment that will result from the
performance. If the reward is small, the motivation will be small, even if expectancy and
instrumentality are both perfect (high).

Time Management
▪ Time Management refers to managing time effectively so that the right time is allocated
to the right activity.
▪ Effective time management allows individuals to assign specific time slots to activities as
per their importance.
▪ Time Management refers to making the best use of time as time is always limited.

Ask yourself which activity is more important and how much time should be allocated to the
same? Know which work should be done earlier and which can be done a little later.

Time Management plays a very important role not only in organizations but also in our personal
lives.
Time Management includes:

i. Effective Planning
ii. Setting goals and objectives
iii. Setting deadlines
iv. Delegation of responsibilities
v. Prioritizing activities as per their importance
vi. Spending the right time on the right activity

▪ Effective Planning
Plan your day well in advance. Prepare a To Do List or a “TASK PLAN”. Jot down the
important activities that need to be done in a single day against the time that should be
allocated to each activity. High Priority work should come on top followed by those
which do not need much of your importance at the moment. Complete pending tasks one
by one. Do not begin fresh work unless you have finished your previous task. Tick the
ones you have already completed. Ensure you finish the tasks within the stipulated time
frame.

▪ Setting Goals and Objectives

Working without goals and targets in an organization would be similar to a situation
where the captain of the ship loses his way in the sea. Yes, you would be lost. Set targets
for yourself and make sure they are realistic ones and achievable.

▪ Setting Deadlines
Set deadlines for yourself and strive hard to complete tasks ahead of the deadlines. Do
not wait for your superiors to ask you everytime. Learn to take ownership of work. One
person who can best set the deadlines is you yourself. Ask yourself how much time needs
to be devoted to a particular task and for how many days. Use a planner to mark the
important dates against the set deadlines.

▪ Delegation of Responsibilities
Learn to say “NO” at workplace. Don’t do everything on your own. There are other
people as well. One should not accept something which he knows is difficult for him. The
roles and responsibilities must be delegated as per interest and specialization of
employees for them to finish tasks within deadlines. A person who does not have
knowledge about something needs more time than someone who knows the work well.

▪ Prioritizing Tasks
Prioritize the tasks as per their importance and urgency. Know the difference between
important and urgent work. Identify which tasks should be done within a day, which all
should be done within a month and so on. Tasks which are most important should be
done earlier.

▪ Spending the right time on right activity

 Develop the habit of doing the right thing at the right time. Work done at the wrong time
is not of much use. Don’t waste a complete day on something which can be done in an
hour or so. Also keep some time separate for your personal calls or checking updates on
Facebook or Twitter. After all human being is not a machine.

For Effective Time Management one needs to be:

Organized - Avoid keeping stacks of file and heaps of paper at your workstation. Throw what
all you don’t need. Put important documents in folders. Keep the files in their respective drawers
with labels on top of each file. It saves time which goes on unnecessary searching.

Don’t misuse time - Do not kill time by loitering or gossiping around. Concentrate on your work
and finish assignments on time. Remember your organization is not paying you for playing
games on computer or peeping into other’s cubicles. First complete your work and then do
whatever you feel like doing. Don’t wait till the last moment.

Be Focussed - One needs to be focused for effective time management.

Develop the habit of using planners, organizers, table top calendars for better time management.
Set reminders on phones or your personal computers.

Approaches to time management

The biggest and most destructive myth in time management is that you can get everything
done if only you follow the right system, use the right to-do list, or process your tasks in the right
way. That’s a mistake. We live in a time when the uninterrupted stream of information and
communication, combined with our unceasing accessibility, means that we could work every
single hour of the day and night and still not keep up. For that reason, choosing what we are
going to ignore may well represent the most important, most strategic time-management decision
of all.
To illustrate, let’s look at the experiences of Todd,1 the head of sales in a large financial-services
firm and a direct report to the CEO. Todd had been struggling to change the way people
approached the sales process. He wanted more measurement. He wanted people to target
prospects that were more likely to bring in higher margins. He wanted people to be more
strategic about which prospects to visit versus which simply to call. Finally, he wanted them to
be more courageous about pursuing “stretch” prospects where the odds of success were low but
the rewards would be high—and more willing to ignore prospects whose accounts weren’t likely
to be particularly profitable.
“I’ve told them all this multiple times,” Todd said. “I’ve even sat them through a long training.
But their behavior isn’t changing. They’re still selling the same old way to the same old
prospects.”
Todd’s salespeople knew what he wanted from them and were able to do it. They also weren’t
lazy; they were working long hours and were working hard. Rather, the problem was that Todd’s
salespeople thought they could do it all. That’s why they resisted segmenting their markets or
measuring the potential of each prospect before planning a visit: they didn’t want to miss any
opportunities. Yet because their time was limited, they ended up missing some of the best.
 If this problem bedevils salespeople in organizations like Todd’s, imagine its impact on senior
executives. The scope, complexity, and ambiguity of senior leaders’ roles not only create near-
infinite permutations of priorities but also make it more difficult to get real-time performance or
productivity feedback. Is it any wonder that only 52 percent of 1,500 executives McKinsey
surveyed said that the way they spent their time largely matched their organizations’ strategic
priorities?
We don’t often place organizational problems (such as weak alignment between the priorities of
a company’s strategy or poor collaboration among the senior team) in the domain of time
management, which is generally seen as an issue for individuals. To meddle with someone’s to-
do list or calendar feels like micromanaging. In addition, time management seems too simplistic
a solution to a complex organizational challenge.
But in this case, the simplest solution may be the most powerful because most behavior-change
challenges are simply about how people are spending their time. That’s precisely where
individual time management and organizational time management need to intersect. The question
is how. Here’s a straightforward approach.
Step one: identify up to five things—no more—that you want to focus on for the year. You
should spend about 95 percent of your time on those things. Why five things? Why 95 percent of
your time? Because getting things done is all about focus. If instead of spending 95 percent of
your time on your top five, you spend 80 percent of your time on your top ten, you lose focus
and things start falling through the cracks.
As an example, Todd’s five things might include the following:
1. Clarify and refine the sales strategy for higher margins.
2. Speak and write to spread the word to higher-margin prospects.
3. Visit higher-margin prospects and clients.
4. Develop and motivate a sales team that focuses on higher-margin clients.
5. Provide cross-silo executive leadership.
Your five things form the structure of your to-do list. Divide a piece of paper into six boxes, five
labeled with one of your areas of focus and the sixth labeled “the other 5 percent.” That other-5-
percent box is like sugar—a little might be OK, but no more than 5 percent of your day should
involve activities that don’t fit into your five areas of annual focus.
Once you’ve defined your six boxes, populate them with the tasks from your overflowing to-do
list. If there are tasks—and there will be—that don’t fit into one of your areas of focus, put them
in the other-5-percent box. When I first started using a six-box to-do list, half of my tasks fell
outside my top five. That changed within a day of using this to-do list as I learned to dismiss and
delete the things that were distracting me from my strategic focus. (Of course, if the other-5-
percent box is filled with mission-critical tasks that can’t be deleted and will take more than a
few hours a week, that suggests your top-five priorities may not be right—a valuable realization.)
Step two: once you’ve created your own six-box to-do list, help each of your direct reports
create his or hers. This is where alignment—not just of strategies but of actions—takes place.
Each of your employees’ top-five things should come out of your top five. Your top five should
come from your supervisor’s top five and so on, with every person’s top five ultimately traceable
back to the CEO’s.
 Clarifying priorities for daily action at the most senior levels of the organization is particularly
important precisely because the most senior jobs are often the most complex and scattered.
Ultimately, the CEO is responsible for everything that happens in the organization. But focusing
on everything is a surefire way to accomplish nothing. So it is the job of the CEO—together with
the board of directors—to identify just a few things that will take the highest priority for the
entire organization.
In Todd’s case, his CEO had identified higher margins as one of his own top five. So Todd—
who, remember, reported directly to the CEO—focused his top five on that. And Todd’s direct
reports listed their own top five in line with Todd’s (exhibit).
Exhibit

How ‘management by six-box to-do list’ cascades priorities across an organization.

• Enlarge

Step three: use these to-do lists to manage your employees more closely, without
micromanaging. In one quick glance, you can look at their priorities, as well as the actions that
they’re taking to move those top-five areas of focus forward. If they’re doing the wrong things,
you can spot that immediately and guide them appropriately. And if they’re doing the right
things, you can acknowledge them for that and help them succeed.
The power of this process lies in its simplicity and its concreteness. These are not top-five goals
or top-five objectives. They form the structure of each person’s to-do list and translate, directly,
into time spent on the job—which is the difference between getting something done versus
simply declaring its importance.
In short, “management by six-box to-do list” encourages organizational transparency and
strategic alignment. It also empowers executives, managers, and employees alike to push back
when they’re asked to do too much work that distracts them from the areas of strategic focus.
When people start doling out tasks that are not in the areas of focus, there’s a structure to bring
the distraction into the open, to discuss it, and to make an intentional decision as to whether it’s
worth accepting or resisting. This approach takes the normal goal-setting process one step
further, creating a much higher likelihood of follow through. Each day, managers and employees
are connecting their day-to-day tasks with the organization’s priorities.
This is particularly useful in matrixed organizations, where people often have multiple dotted-
line relationships to multiple managers, and in global organizations with cross-border lines of
command that can be convoluted, resulting in friction between regional priorities, local
management, and business-unit prerogatives.2 In such instances, confusion increases, along with
the complexity of the management structure. All managers believe that their priorities should
take precedence. Tensions rise, along with passive-aggressive resistance and plain old
procrastination due to overwhelming work demands.
The six-box to-do list clarifies this confusion by putting everything on paper and ensuring
alignment—not just top down, but across the hierarchy as well. Each employee has her own six
boxes—and if one dotted-line manager wants her to focus on something outside her top five, that
becomes immediately evident and gets resolved at the level where it should get resolved:
between the managers themselves.
Many organizations use MBOs (management by objectives), but those objectives are rarely
looked at outside the annual performance review (or, in some cases, quarterly) and never
translated into daily tasks. If a CEO is going to drive a strategy though an organization, the
organization needs to build its daily actions around that strategy. Remember, the McKinsey
survey found that only 52 percent of executives spent their time in ways that largely matched
their organizations’ strategic priorities. The six-box to-do list should increase that percentage.
At first, when Todd started using the six-box to-do list, everyone got nervous. Some of the
anxiety was about putting to-do lists on display. But after the first few days, that turned out to be
a nonissue. The real source of discomfort was that Todd’s direct reports began to discard much
of what they had previously planned to do.
It didn’t take long for them to gain confidence—and pleasure—in limiting their efforts to those
most likely to pay off. That focus recently enabled one of Todd’s salespeople to make the largest,
most profitable single sale that his division of the century-old company has ever made—without
working weekends.

Time management Strengths and Weakness

Today time management is a very popular discipline of self-improvement used in most companies
and organizations. At the same some people don’t believe that this discipline really helps so they
continue disputing on time management strengths and weaknesses. Let’s try to determine the
weaknesses and strengths and then create our own vision on this disputable question.

There are only two weaknesses:

• Be self-disciplined to follow daily rhythm from day to day.

• Purchase time management software for creating and using schedules and to-do lists.

Even if you have to purchase software and teach yourself to be disciplined, you will gain more
benefit from following time management rules and principles. The listed weaknesses will never
overcome the strengths. Let’s review the most useful strengths:

• Complete tasks always on schedule and never face the problem of procrastination.
• Do more tasks spending less time and effort.
• Find the work-life balance.
• Build a successful career in your place of employment.
• Better collaborate with colleagues and senior management.

What are your time strengths? Obviously time management really helps when a person knows how
to follow principles of this disciple and what software solutions should used for planning time
consumption.CentriQS is just like one of the business management solutions used to simplify time
management and allow you to be self-disciplined and find the work-life balance.

Action Plan:
 • Use the Tasks view to plan tasks.
• Set priority, state, due date and other attributes for tasks
• Drag and drop tasks in the Tasks view to the Scheduler panel to schedule tasks
• Set reminder and receive notifications of task

URGENCY ADDICTION AND TIME MANAGEMENT MATRIX

Most time-management techniques can easily help you become better organized and more
focused. But do these techniques help you feel happier and more fulfilled?

At the end of a day, week, month, or year, the workaholic who spends all his time fighting fires
and running from one urgent matter to the next often feels empty. This emptiness is a symptom
of what Stephen R. Covey calls an "urgency addiction."

Time Management Matrix by Stephen Covey – Urgent

vs Important
Stephen Covey, author of The Seven Habits of Highly Effective People and First Things
First popularized the concept of a Time Management Matrix for prioritizing that I love (Side
note: I say “popularized” because it appears Eisenhower was originally credited with using
it). The system advocates the use of four quadrants to determine the tasks you “need” to do and
deciding what should be made a priority.
For those who are not familiar with it, here’s a picture and a brief overview.
▪ In Quadrant 1 (top left) we have important, urgent items – items that need to be dealt with
immediately.
▪ In Quadrant 2 (top right) we have important, but not urgent items – items that are important
but do not require your immediate attention, and need to be planned for. This quadrant is
highlighted because Covey emphasizes this is the quadrant that we should focus on for
long term achievement of goals
▪ In Quadrant 3 (bottom left) we have urgent, but unimportant items – items which should
be minimized or eliminated. These are the time sucks, the “poor planning on your part does
not constitute an emergency on my part” variety of tasks.
▪ In Quadrant 4 (bottom right) we have unimportant and also not urgent items – items that
don’t have to be done anytime soon, perhaps add little to no value and also should be
minimized or eliminated. These are often trivial time wasters
In addition to providing text examples, I’m going to have a little fun and illustrate items from
each quadrant using one of my favorite comics, XKCD. Note: XKCD sometimes contains strong
language and is not always safe for work. All the items in this post however are, though they do
contain some swearing.

Quadrant 4 – Not Urgent and Not Important

Clearly, not urgent, not important – and an obvious time waster. Other time wasters include:

▪ Mindless web browsing

▪ Too much television/channel surfing for the sake of channel surfing

Quadrant 3 – Urgent and Not Important

Other “Urgent” tasks that add little to no value

▪ Phone calls that are off topic

▪ Email that you have to reply to right away or it loses value (“Do you want some donuts? I
have some in my office!”)
 Quadrant 2 – Not Urgent And Important

Your overall health is something you may take for granted today, and may not see urgency in
dealing with it – but long term, we know it’s of supreme importance.
There are some other important, yet not urgent, things that fall into this quadrant as well:

▪ Exercise
▪ Reviewing your career path
▪ Maintaining relationships with family/friends

Quadrant 1 – Urgent and Important

Perhaps not entirely rational, but at least her priorities are in order. Other examples:

▪ Family Emergencies
▪ Real, hard deadlines for important projects