IGNOU MTM 8 2017 - Explain the steps involved in the preparation of a business plan. Iden

Question

Explain the steps involved in the preparation of a business plan. Identify the common errors in business
plan formulation.

24 Jan 2018

Answer :

Word Count : 1085

Steps involved in the preparation of a business plan are -

PROJECT REPORT – SIGNIFICANCE AND SCOPE
SUMMARY OF THE BUSINESS PLAN
PRODUCT/SERVICE DESCRIPTION
LOCATION CRITERIA AND CHECKLIST
PLANT AND MACHINERY – SPACE CONSIDERATIONS
TECHNICAL FEASIBILITY AND KNOW-HOW
RAW MATERIALS
WORKING CAPITAL COMPUTATION
PROJECT COST COMPONENTS
COST OF PRODUCTION AND PROFITABILITY PROJECTION
CASH FLOW STATEMENT
BREAK-EVEN ANALYSIS (BEA)
IMPLEMENTATION SCHEDULE

Common errors in business plan formulation are -

1) Capacity-Utilisation Estimates: Gross Unrealism Over-optimistic and simplistic assumption with reference to utilisation of installed capacity is a pervasive feature of business plans. There are so many entrepreneurs who presume 80% capacity-utilisation in the first year, 90% in the second year and 100% in the third year. The assumption is made in complete disregard of existing enterprise-performance, market conditions, competition-level and possible technical snags. The business plan, in such a case, is reduced to financial jugglery. It is exciting to make such an assumption and derive satisfaction from financial-performance projection. But then, the projection is based on a completely false premises. Avoid this temptation.

2) Capacity Computation: A MiscalculationThe computation of installed capacity is a technical task not always performed competently. There are several finer points – die-changing time, down time, periodic shut-down, capacity of other equipments – which tend to lower the overall installed capacity. An exaggerated statement of overall capacity on account of entrepreneur being unaware of such finer points is rather commonplace. So, pay attention to capacity-calculation.

3) Market Study: A Neglected Task Market study continues to be a grey area. It is relatively easy to work out technical arrangement and to make financial-performance projection. You are, in these cases, dealing with specific or quantifiable variables. Market study, in contrast, entails a lessstructured probe and contending with less definite variables. So, there are entrepreneurs who pass by this component of business plan completely. They cite demographic (population, income, etc.) statistics, present sketchy and inaccurate information on demand-supply position, produce stray opinions and conclude that market is just there waiting to be tapped. This is an attitudinal block. Make sure you do not develop such a block.

4) Machinery Selection: Serious Errors This is a subject on which faulty decisions are common. There are machinery-suppliers who may never have made a certain kind of machinery, may not have

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