generation and screening of ideas
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GENERATION ANDSCREENING OF IDEAS
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3.6 Preliminary Expenses
Here, the suggestions made in the previoussections made the screening possible. A long
list of ideas are developed.C ompatibility with the promoter C onsistency with government priorities
Availability of input
Adequacy of marketReasonableness of cost
Acceptability of risk level
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Compatibility with the promoter
T he idea must be compatible with the interest,personality and resources of the entrepreneur
real opportunity must have followingcharacteristics:It fits the personality of the entrepreneur It is accessible to himIt offers him the prospect of rapid growth andhigh return on the invested capital
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Consistency with governmentpriorities
T he idea must be feasible to national goals andgovernment regulatory framework. T he
questions arise are:Is the project is consistent with national goal andpriorities?
Are there any governmental effects contrary to
governmental regulations?C an the foreign exchange requirements of theproject be easily accommodated?
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Availability of input
T he resources and inputs required for theproject must be reasonably assured such as:
Capital requirement?
Energy requirement?Material requirement?
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Adequacy of market
T he size of the present market must offer theprospect of adequate sales volume.
Total present domestic market
C ompetitors and their market sharesExport marketSales and distribution system
Projected increase in consumptionPatent protection
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Reasonableness of cost
T he cost of the proposed project must enable itto realize an acceptable profit with a price.Examination areas here are:
C ost of material inputLabor inputFactory overheadsGeneral administration expensesSelling and distribution costService costEconomies of scale
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Acceptability of risk level
T he desirability of a project is criticallydependent on the risk characterizing it.
Vulnerability of business cyclesT echnological changes
C ompetition from substitutesC ompetitions from imports
Govt. control over price and distribution
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3.7 PROJECT RATING INDEX
W hen a firm evaluates a large number of project regularly, it may be helpful to
streamline the process of preliminaryscreening. For this purpose,
Preliminary evaluation is translated into aproject rating index .
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Identify factors relevant for project rating
Assign weights to these factors
Rate the proposal on various factors, using a suitablerating scale
For each factor, multiply the factor rating with the
factor weight to get the factor score
Add all the factor scores to get the overall projectrating index
Process
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3.8 SOURCES OF NETPRESENT VALUE
T here are six entry barriers that results inpositive NP V projects. T hey are as follows:
Economies of scaleProduct differentiationC ost advantageMarketing reachT echnological edgeGovernment policy
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Economies of scale
Economies of scale means that an increase
in the scale of production, marketing or distribution result in a decline in the cost per unit.
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Product differentiation
A firm can create an entry barrier bysuccessfully differentiating its products from
those of its rivals.T
he basis for differentiationby one or more of the following:Effective advertising and superior marketingExceptional service
Innovative product featureHigh quality and dependability
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Cost advantage
If a firm can enjoy cost advantage vis-à-vis its
competitors, it can be reasonably assured of earning superior returns. It may: A favorite locationMore effective cost control and cost reduction.Monopolistic access to low cost materials.
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M arketing reach
A penetrating marketing reach is an important
source of competitive advantage. Examplesare: Avon productsHindustan lever¶s limited
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Technological edge
T echnological superiority enables a firm toenjoy excellent returns. Such as
IB MXEROX
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Government policy
A govt. policy which shelters a firm from the
onslaught of competition enables it to earnsuperior returns. Some policies are:Restrictive licensingImport restrictionHigh tariff walls
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3.9 ON BEING ANENTREPRENEUR
Now the entrepreneurial urge to set up their
own project. T he traits and qualities of anentrepreneur must answer the followingquestion:
Are my goal well defined?
Do I have the right strategy?C an I execute the strategy?
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Q ualities And Traits Of ASuccessful Entrepreneur
W illingness to make sacrificeLeadership
DecisivenessC onfidence in the projectMarketing orientation
Strong egoOpen mindedness