Enterprenuership for for Engineers (1)

8/17/2019 Enterprenuership for for Engineers (1)

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Debre-Markos UniversityDebre-Markos UniversityCollege of Technology

Mechanical Engineering DepartmentMechanical Engineering Department

lecture note on Entrepreneurship for Engineers



Contents

Part 1

Part 2

Part 3

Part 4Part 5

Part 6

Introduction toEntrepreneurship

Choosing The Legal Form O an

O!nership"etting a #usiness enterprise

$ar%eting in #usiness enterprises

Financing and accounting in

&usiness'is% and insurance o #usiness

enterprises



Chapter oneEntrepreneurship

Entrepreneur

Entrepreneurship



)hat is Entrepreneur*

Entrepreneurs are action-oriented, highly

motivated individuals who take risks toachieve goals

Entrepreneurs are people who have theability

to see and evaluate business opportunities,to gather the necessary resources to take

advantage of them! and

to initiate appropriate action to ensure success

$eaning o the terms Entrepreneur+Entrepreneurship+ O!ner,$anager



Economists may view entrepreneurs as

those who bring resources together inunusual combinations to generate profits

Ps-chologists tend to view entrepreneurs inbehavioral terms as those achievement-

oriented individuals driven to seek challengesand new accomplishments

Peter .ruc%er states, as "Entrepreneur is

someone who always searches for changeresponds to it, and e#ploits it as anopportunity$

E#ample% &t is the entrepreneur who only

knows



)hat is Entrepreneurship*

" Entrepreneurship is the dynamic process ofcreating incremental wealth This wealth is

created by individuals who assume the ma*orrisks in terms of e+uity, time and or careercommitments of providing value for some

product or service The product or service itselfmay or may not be new or uni+ue but value

must somehow be infused by the entrepreneur

by securing and allocating the necessary skillsand resources$ Robert Ronstadt

Entrepreneurship is very rarely a get rich-+uick



What Is An Entrepreneur& Entrepreneurship ?

E/T'EP'E/E0'

ision,drien indiidual !ho assumessigniicant personal and inancial ris% to

start or epand a &usiness

E/T'EP'E/E0'"IP

The pursuit o opportunit- throughinnoation+ creatiit- and hard !or%

!ithout regard or

the resources currentl- controlled



The Entrepreneurial rocess•

&t is opportunity/market opportunity/market driven• &t is driven by a lead entrepreneur lead entrepreneur

and an entrepreneurial teamentrepreneurial team

• &t is resource parsimonious parsimonious and creativecreative

• &t depends on the fit fit and balancebalance amongthese

• &t is integratedintegrated and holisticholistic



The entrepreneur ersus the o!nermanager similarities and dierences7

Entrepreneur

a.Entrepreneurial function is theorganization of production% Entrepreneurship is an economic concept

Economics describes four factors ofproduction, namely, land, labor, capital andentrepreneurial ability .organizationalskill).

b. Decision-making and calculated riskbearing:

c. An entrepreneur has an all-round personality:

d. High leels of achieement



O!ner $anager

They may or may not be entrepreneurs They own and manage a small enterprise, in a

way, which fits with their personalmotivations

They are more intent on survival than seekinginnovative change and growth/ 0imited scope for innovativeness, creativity and

imagination

1 Managerial *obs are transferable

-2s a manager in the businessorgani3ation, his *ob is transferable from officeto office, from one unit and location to anotherlocation4 Managers do not bear-risk



Characteristics o Entrepreneurs

1 /eed or chieement8, ision

2 )illingness to ta%e ris%s8,inancial+ careers+

amil- +

3 "el,Conidence8, internal and eternal locus o

control6 Innoation8, The entrepreneurial manger is constantly

looking for innovations, not by waiting for a flash of

inspirations, but through an organi3ed and continuous

search for new ideas

5 Total Commitment

6 ll,rounders

9 need to see% reuge8, escape rom



'ther types of " refugees$ mentioned are thefollowing%

$.!he parental %paternal) refugee7ho leaves a family business to show the parent that

"& can do it alone$

&.!he feminist refugee

7ho e#periences discrimination and elects to start afirm in which she can operate independently malechauvinist

'.!he house"ife refugee7ho starts her own business after her family is

grown or at some other point when she can freeherself from household responsibilities

(.!he educational refugee



$otiation or starting a&usiness*



$otiation or starting a &usiness

The reason for small firm formation can be dividedbetween "pull$ and "push$ influences

I:Pull; Inluence 8ome individuals are attracted towards small

business ownership by positive motive suchas a specific idea which they are convincedwill work $ull$ motives include%

a Desire for independence

b Desire to exploit an opportunity c urning a hobby or previous !ork experience in

to a business

d "inancial Incentive

The promise of long-term financial



:Push; Independence

Many people are pushed into founding a newenterprise by variety of factors including%

#$%edundancy 99:;eing without a *ob .idleness<

1nemployment 'or threat of(

4Disagreement !ith previousemployer 99:Uncomfortable relation at work has

also pushed new entrants into small business

The dividing line between those "pulled$ andthose "pushed$ is often blurred



'utcomes of Entrepreneurship

Economic growth=ew industry formation

>ob creation

"uccess actors or entrepreneurs

Most new ventures succeed because their founders are capableindividuals

/The entrepreneurial team

1&ncremental growth of product or

services



Weakness of entrepreneurship

a imited resource%- entrepreneurshipmostly starts from small investment orcontribution of owners are more than oneindividual

b ack of e*perience%- most ofentrepreneurs have no e#perience and thismay lead to in efficiency

c .isagreement bet"een member % if theowner of entrepreneur is more than oneperson, disagreement between them can becreated This disagreement can limit the

operation of the business-



e Risk %- starting or buying a new businessinvolves risk and the higher rewards the

greater the risk entrepreneurs usually face This is why entrepreneurs tend to haveevaluate risk very carefully

f Lo!er <ualit- o lie until the &usinessgets esta&lished%- the long hour and hardwork needed to launch a business can taketheir tall in the rest of the entrepreneurs life

g Complete responsibility%- it is great to be theboss but many entrepreneurs find they mustmake decision on issues about which they

are not knowledgeable 7hen there is no one



Elements inoled inEntrepreneur

/5&8? %- 8imply stated risk is "acondition in !hich there is a

possibility of an adverse deviationfrom a desired outcome that isexpected or hoped from applied to a

business risk translates in to thepossibility of losses associated withthe assets and the earning potentialof the firm )



;usiness risks can be classified in to twobroad category market risk and pure risk

Entrepreneurs face a number of differenttypes of risk These can be grouped in tobasic areas

a Political ris% %-

& #usiness ris%8,

c Economic ris% %-

d propert- ris%

e Personal ris%



2Inormation

&nformation gives the following importance tothe businessmen)s

To know the position of their competitors

that is their strength and weaknesses,business strategy they use and their longterm plan

To know threats and opportunity in doing

business(elps to design long term ob*ectives and

goals indicate capital re+uirement .labor,

capital and machinery<



,ources of information

&nformation are obtained from two main

methods of data collection That is primary datacollection and secondary data collection

/Collection of primary data%'bservation method

&nterview method Through +uestioner

'ther methods which includes warrantycards, consumer panels, etc



1 Collection of secondary data%-8econdary

data are available inAarious publication of the central state and

local government

Aarious publications of foreign governmentor international bodies and their subsidiaryorgani3ation

Technical and trade *ournals

;ooks, maga3ines and newspapers5eports

ublic records and statistics, historicaldocuments



;y way of caution, the entrepreneur beforeusing secondary data must see that the

process following characteristics

/5eliability of data a 7ho collected the dataB

b 7hat were the sources of dataB c 7ere they collected by using propermethodsB

d 2t what time they collected Etc

18uitability of data%- the data that aresuitable for one en+uiry may not be suitablefor another en+uiry, then the researcher hasto check the suitability of the data properly



=inds o Entrepreneurship

/7omen Entrepreneurs

1ounders and other Entrepreneursa ounding Entrepreneurs ounders

beneral mangers and

cranchisees

4(igh-rowth and low-rowth irms

aMarginal irms

b2ttractive 8mall Companies and

c(igh potential ventures

ssignment One8 7hat is franchise franchiseein businessB Fma# /pageG



8tarting Technology basednew venture

Introduction The innovative capacity of an entrepreneur and

more accurately, of companies operating in thatfield, is a key determinant of its capability to

enhance the economic development and toupgrade the standard of living of a country &t iswidely accepted that one of the indicators of thisinnovative capacity is the rate of creation of =ew

Technology-;ased firms .=T;< The nurturing of small firm formation and growth

has become increasingly important to the healthof developed economies in general, and to the

creation of new innovative industrial sectors in

C )d



Cont)d Technology incubators, which play a role in

accelerating the commerciali3ation of 5D

outputs and the transfer of technology, havecontributed to startups of high technology-basedenterprises in the newly industriali3ingeconomies of developing and developed

economies of the world8trengthening and promoting technology based

ventures through incubation programmes for newtechnology based enterprises is necessary for

them to survive in a competitive society

o! to orm and deelop Technolog- &ased



o! to orm and deelop Technolog- &asedentures*

overnment policies%Credit programmes with 8tate-subsidi3ed rates8hare programmes by overnment venture-capital

companies

rants by the overnment, especially for creating *obsand for research

8ecurity programmes by the overnment for taking overpart of the risk of the credit institutions for enterprises

2dvisory services

'ther support activities for enterprises with

both public and private sector involvement,

Cont)d



Cont dTechnical consulting serices8 More

speciali3ed services are provided such asnetworking assistance between enterprisesand science and technology organi3ations,technology transfer, the e#change of similare#periences and the identification ofpotential for cooperation

Financing support actiities8 'fferoptimal conditions to enterprises, especially8MEs, in terms of rent and costs of spaces,infrastructure and services 'ffer also

assistance with accessing and using financialsources such as corporate financing, businessangels, venture capital, and so forth!

Intellectual propert- assistance8 2ssistance with developing and patentingnew and improved technology, including

Factors contri&uting to the "uccess o igh



Factors contri&uting to the "uccess o ighTechnolog- &ased Enterprises

The main catalytic factors for the success of

high technology-based enterprises are %national policies,

research and development institutions

technological entrepreneur development

innovative finance support systems protecting intellectual property

science and technology parks

promoting and developing strategic businessalliances and networking

standardi3ation, +uality control andmarketing

Technolog- transer or &usiness



Technolog- transer or &usinessdeelopment

Technolog- transer is the process by

which e#isting knowledge, facilities orcapabilities are utili3ed and marketed tofulfill public and private needs

&t is the process by which basic scienceresearch and fundamental discoveries aredeveloped into practical and commerciallyrelevant applications and products

Technology transfer processes constitutestechnology transfer* technology promotion*technology deployment* technologyinnovation* technology development*

technology research* technology



technolog-

Cost8 Technology can cut costs in many ways%

reducing material, labor or distribution costsE#ample% material costs can be reduced byreplacing lower cost material or by reducing thematerial re+uired to make a product

"peed o delier-8 The key competitive priority

may be the speed of delivery, as measured by leadtime re+uired to deliver a product E#ample,2utomated guidance vehicle.2A<, Electronic Data&nterchange.ED&<

?ualit-8 Technologies help to improve the +uality and

reduce the production costs

Flei&ilit- and customi@ation8 The global market

place of /HHIs is characteri3ed by short product lifecycles,

increased product veriety, and e#tensive customi3ation Toretain and increase market share in such competitive



rocess



Change



technology

=ew industries are born when technological

change produces a new opportunity that anenterprising entrepreneur sei3es

Disruptive or metamorphic technologies thatdestroy previous technologies and create new

industries display a different pattern ofbehavior

The pattern of growth, shakeout, stabili3ation,and decline of industry can be interrupted at

any time by the entry of another disruptivetechnology

5eading assignment>"teps in Technolog- Transer



&n The ;eginningKK

The 7orld was roundKK



2nd =owKKKB

• Companies worldwide are finding they must either convincingly justify theirprices or differentiate themselves with some kind of perceived recognizable

value.



!echnology is al"ays eoling andcompanies not #ust search companies

can/t be afraid to take adantage ofchange.0-Eric ,chimdt



!he use of technology as an integraland key element in the transformationof goods or serices.0 1 Randall ,tross



DefinitionTechnopreneurship is the 5esult of uniting

"Technology$ with "Entrepreneurship$ This is not *ust the effect of technology on

businesses but rather the process whereprogression in the lives of the people happens

&t is the process of using the developmentsbrought about by speciali3ed knowledge to comeup with innovations in all the aspects of humanlife with the aid of a creative and skillful mind

;irth of this field provides every entrepreneur achallenge of e#ploring an untraveled pathtowards greater success

Technopreneurship can be



Technopreneurship can bedefined as

2ntegration of !echnology 2nnoationand Entrepreneurship

Act of turning something0 into aresource of high alue by conerting

good ideas into business entures thatrelies heaily on the application ofhuman kno"ledge for practical purposes.

Entrepreneurship in the field oftechnology.

4irms in "hich technology plays a

critical role in their operations.



Definition ContinuesK

Application of the ne"est inentionsand adancements in coming out "ithne" and innoatie products throughthe process of dissemination.

6anufacturing of hi-tech products ormaking use of hi technology to delier

product to consumers.

E*haustie use of and E*ploitation of

technology in making profit.

8ome Thoughts from Definition- The Meruvian



8ome Thoughts from Definition The Meruvian5oadmap



7ho (as ;eenB

8teve >obs ;ill ates



7ho has ;eenKB

Mark Luckerberg 8ergey ;rin and0arry age



?ey &deas



Discovering aps

8 ki d C ti



8eeking and Creating'pportunities

7hat do you 8eeBroblem or a

ChallengeB

2lways Distinguish;etween 5isk andUncertaintyUncertainty is an

opportunity for

&nnovation

'pportunities2bound, 8ee or

Create them

? i d 0 i



?nowing and 0everaging your8trengths

2reas of E#perti3e7hat comes to you

=aturally

2reas you can

0everage in a8ynergy

8kills, ?nowledge,roven 2bilities

D fi i d 2 bli



Defining and 2ssembling our2udience

Define your Market

8egment your2udience

2ssemble the2udience and Target the 8hareof Mind

Create Top ofMind 2wareness

d l



Model



Moneti3ing your Creation

5evenueModels8ubscription2dvertising'utright 8ales8ales and

8ervice

Aarious ossible unding



Aarious ossible undingModels

i l h h



inal Thoughts



2f you really "ant it you/ll find a "ay 2fyou don/t you/ll find an e*cuse7

- 8im Rohn

2f 2 had asked people "hat they"anted they "ould hae said faster

horses.0

-Henry 4ord

P t t Ch i Th L l



Part t!o8 Choosing The LegalForm O an O!nership

1/ orms of 'wnership and legalre+uirement

11 2dvantage and disadvantage foreach types of ownership

Forms o o!nership and legal



p gre<uirements

Those forms have been modified over thecourse of time to keep pace with businessneeds and the custom of society

'wnership of business is represented by theright of individual or a group of individuals toac+uire legal title to property .assets< for thepurpose of controlling them and to en-oy the

gains of profits from such possession and use



The most common forms currently in wideuse by small business are%,ole proprietorship5artnership9orporations and

9ooperatiesEach form of ownership has a characteristic

internal structure, legal status, si3e andfield to which it is best suited

/< 8ole proprietorship



/< 8ole proprietorship

&t is an individual or single ownership

The sole proprietorship is a form of businessorgani3ation in whicho 2n individual introduces his capital,

o Use of his own skill and intelligence in the

management of its affairs ando &t is solely responsible for the results of itsoperation

This form is known also as indiidual or single

proprietorship, sole o"nership or indiidualenterprise

E#ample% hoto studio, bookshop, bakeries, small

town restaurants, retail stores, radio and watch

proprietorships



p p p

a Ease and lo! cost o ormation and

dissolution8,there are no restrictions on eitherstarting or terminating small business operations

& .irect motiation and personal care

c Freedom and promptness o action

The sole proprietor can take his own decision andthere is none to +uestion his authority the soleproprietor can take prompt+uick decisionsespecially when an emergency arises

d #usiness conidentialit-e "ingle Ta8, The proprietorship does not pay ta#

as a business! the profits from the business arethe personal income of the owner and are declare

on his individual income ta# return

proprietorship



proprietorship

a. imited resources and size:-the capacity and

skill are very limited 0ending institutions andsuppliers may not be willing to cooperate becauseit is neither safe nor dependable which results inmaking the business to remain limited in si3e

b imited 6anagerial ,kill:- in comple# anddifficult condition which re+uires differente#pertise knowledge

c +nlimited liability:- The sole proprietor will belegally liable for all debts of the business , a sourceof courage and real devotion, limit his activitiesonly in specified areas

d +ncertain futureDeath of the o"ner

2 P t hi >>



2 Partnership>>

The association of t"o or more persons to

carry as co-o"ners of a business where therelationship is based on agreement iscalled partnership

This form of a business re+uires the e#istenceof two or more persons entering into acontractual relationship

This contract, which is an agreement betweenthe parties, is known as a memorandum ofassociation or article of partners/ deed

=inds o Partners



ds o a e s

/2 general partner

2ssumes unlimited liability and is usually active inmanaging the business Most partners are generalpartners

12 limited or special partner

2ssumes limited liability, risking only his herinvestment in the business 0imited partners maynot be active in management, and their names arenot used in the name of the business

42 secret partner

Takes an active role in managing a partnership butwhose identities are unknown to the public ie thegeneral public does not know of this person)spartnership status

62 silent partner



N.enior partners

2ssume ma*or roles in management because of the

long tenure .possession<, amount of investment inthe partnership, or age They normally receivelarge shares of the partnership)s profits

O unior partners

2re generally younger partners in tenure, haveonly small investment in the firm, and are note#pected to make ma*or decision They assumelimited role in the partnership)s management and

receive a smaller share of the partnership)s profits8ee othersK

dantages o partnership



dantages o partnership

1 Ease of starting

2 2ncreased source of capital 01artnership canoffer creditors less risk than a soleproprietorship! it is often an attractiveinvestment

3 9ombined managerial skill 4 Definite legal status

Today)s partner can be assured that acompetent lawyer can answer virtually any+uestions heshe might have about this form ofownership ie lawyers can provide a soundlegal advice about partnership issues

O 2otivation of important employees

.isadantages o partnership



.isadantages o partnership

/$nlimited liability

1$ %isk of implied authority The fault and miss *udgment made by a single

partner binds the firm and the remainingpartners Thus, they are liable for the debts

made by the partner4 4ack of harmony5agrmnt or synchroni,atn

6 4ack of continuity/instability/

&f any one of the general partners dies,withdraws because of mentally or physicallyincapable .in*ured<, the partnership ends

N Investment !ithdra!als difficulty

fro,en1investment

3 Corporation>>>



3 Corporation>>>

2 corporation is an artificial person authori3edand recogni3ed by law, with distinctive name, acommon seal, comprising of transferableshares of fi#ed values, carrying limited liabilityand having a perpetual or continued or

uninterrupted succession

Characteristics o Corporation



p

1 ,eparate legal entity

&t can sue or be sued&t has the right to manage its own affairs

8hareholders cannot be liable for the acts of thecorporation

&. imited liability8ince the corporation has separate legal entity its

debts are its own The assets and liabilities, rightsand obligations incidental to the company)s activities

are assets and liabilities, rights and obligationsrespectively of the company and not of its members

'.!ransferiablity of shares

&t is easy to transfer ownership in a corporation 2

( 5erpitual e*istence



(.5erpitual e*istence

Death, insanity, retirement and withdrawal ofshareholders will not affect the company

;.9ommon seal

2 corporation has a common seal with thename of the company engraved on it, which isused as a substitute for its signature through itacts through its agents

<.,eparation of o"nership frommanagement

=.,uperision>.?ritten 9onstitution

'n the creation of a company, the promotersmust file certain documents with the 5egistrar

of Companies These include the Article of

corporation



#$ "inancial strength

6$ 4imited liability

7$.cope of expansion Corporations have greater potential than sole

proprietorship or partnerships

8$ 2anagerial efficiency Corporations en*oy the advantage of efficient

management by hiring specialist)s skilledpersons to become members of the board of

directors to mange the corporation9$ Ease in transferring o!nership

:$ 4egal entity status

2 corporation can purchase property, make

contracts, sue and be sued in the corporate

sa an ages o a corpora on



#$ Difficulty of formation

&t is time consuming and cumbersomenotmanagable to establish corporations unlike theother forms of businesses

6$ 4ack of o!ner;s/manager;s personal interest

These forms of organi3ations are managed bydirectors, hired officials, and employees whomay not be e#pected to have such an interestin the success of the business as the individual

owner or partner would have in his ownbusiness

7$ Delay in decision1making5it needs official meeting of

managers or board

8$4ack of secrecy5$openness5lack of privacy

4 Corporaties>7



4Corporaties>7

&t is an organi3ation owned by

memberscustomers who pay an annualmembership fee and share in any profits .if it isprofit making organi3ation<

&t has to adopt the following principles%

2embers have an e<ual vote in decisions2embership is open to every one !ho fulfills

specified conditions .eg =umber of hour worked<

Assets controlled and usually o!ned -ointly by

members

=rofit shared e<ually bet!een members !ithlimited interest payment on loans made bymembers!

5 Other orms o &usiness



5Other orms o &usiness

4ranchises

2 franchise is a business in which the owner ofthe name or method of doing business .calledthe franchisor< allows a local operator .calledthe franchisee< to set up a business under that

name

6anagement buy-outs and buy-ins

&n recent years the traditional separation of

shareholders and management has beeneroded by the growing popularity ofmanagement buy-outs/ This is where agroup of members pool their resources to buy

the business they have been running, usually

Part Three8 "etting a #usinessenterprise



enterprise

4/ 8mall ;usiness as ;asiccomponents of Economy

41 7hat is basic business idea

44 8teps in business setting

46 Developing a ;usiness lan

7hat is small businessB



7hat is small businessB

There are two approaches to define small;usiness They are%

/ ;y some measure of si3e

1 using an economic control definitions

…ዉ what r msr of si3eB

Kwt r economic criteriaB

1 "i@e Criteria



1 "i@e Criteria

E#amples of criteria used to measure si3e are%

/ =umber of employees 1 8alesvolume

4 2sset si3e 6 &nsuranceenforce

N Aolume of deposits

2lthough the first criteria located above,employee, is the most widely used yardstick!the best criteria in any given case dependsupon the user)s purpose



To provide a clear image of the small firms, thefollowing general criteria for defining a small

business are suggested%

2< inancing of the business is supplied by oneindividual or a small group

b< E#cept for its marketing function, the firm)soperations are geographically locali3ed

c< Compared to the biggest firms in the industryis small

d< The number of employees in the business isusually fewer than /II

Economic AControl Criteria



Economic AControl Criteria

The economic control definition cover%

a7$ar%et share%- The characteristics of a smallfirm)s share of the market is that it is not largeenough to enable it to influence the prices ofnational +uantities of goods sold to any significant

e#tent

&7Independence8- Means that the owner has controlof the business himself

c7Personali@ed management8- &s the mostcharacteristics factor of all &t implies that the owneractivity participates in all aspects of themanagements of the business, and in all ma*ordecisions-making processes There is no delegationof authorit

T-pes o small &usiness



T-pes o small &usiness

/ amily Enterprises

amily owned business varies widely and caninclude retail stores, contracting businesses,small manufacturing firms, and restaurantsamong others &n the absence of a successor,

the life of a venture is limited to the workinglife of its founder 8uccession is a seriousproblem

1 ersonal service irms.8<4 ranchise%-The franchisee may receiver

rancis help, training, a protected market, andtechnical assistance with matters such as site

selections, purchasing, accounting, and

to econom-*



to econom-*

They make e#ceptional contributions as theyprovide

a=ew *obs as populations and economy grow,small business provide new *ob opportunity

b&ntroducing innovations-many scientificbreakthrough originated with small organi3ationhotocopies, etc

c 8timulating Economic competitions



5easons for the more rapid growth of small firms in

most developed countries

/=ew technologies, such as numerically controlledmachine tools, may permit efficient production

on a smaller scale1reater fle#ibility is re+uired as a result of

increased global competitions

4Consumers may be coming to prefer personali3ed

products over mass produced goods

Causes or small &usiness ailure



Incompetence- The owners simply do not know how

to run the enterprise0n&alanced eperience, do not have rounded

e#perience in the ma*or activities of businessproduction

Lac% o managerial eperience Do not know howto manage production

Lac% o eperience in the line, the owner hasentered a business field in which he or she has very

little knowledge/eglect, the owner does not pay sufficient attention

to the enterprise

Fraud, involves intentional misrepresentations or

deception .purchasing materials or goods for himher

The following are specific managerial causes of



The following are specific managerial causes ofsmall business failure

&nade+uate records- unable to establish an

ade+uate record keeping system

E#pansion beyond resources

0ack of information about customer

ailure to diversify market

0ack of marketing research

0egal problems

=epotism- favoritism toward family members

'ne person management

0ack of technical competence

2bsentee management the owner stayed away

for long period

&usiness



"trength

/ Independence

Most small business owners en*oy being theirown boss, they like the freedom to do things than

way1 Financial opportunities

Many small business owners make more moneyrunning their own company than they would be

working for someone else

3 Communit- serices

if the person has reason to believe the public will

pay for such output, heshe will start a company



4 Bo& securit- when one owns a business, *ob security is

ensured

5 Famil- emplo-ment &eneits7

create the employment in the family

higher moral and trust occur in family-runbusiness

is times of server economic downturn6 Challenge

They want to win or lose on their ownabilities the challenge gives them

psychological satisfaction

)ea%nesses



ea esses

1 "ales luctuations

in some months sales are very high, while inother they drop off dramatically The individualmust balance cash inflows with cash outflows

2 Competition, 'wning a business is the risk ofcompetition .eg 5estaurants<

3 Increased responsi&ilities, owner is often abookkeeper, accountant sales person, personnel

manager

4 Financial loses, when the owner makes allma*or decisions

,

)hat is &asic &usiness idea*



)hat is &asic &usiness idea*

&t is logical to think of a goal for the unit in long

run rather than to look for the immediatetomorrow This long-term thinking is called basicbusiness idea

; i b i h ld thi k f



;usinessmenbusinesswomen should think oflong-term goal and the profit when they start a

business The basic business idea, which is at the top of

the hierarchy, is to meet the broadest needs ofthe customers, and has the long life perhaps

from N-NI years

The basic business idea facilitates choice ofproduct under an overall plan

Thus, entrepreneur may think of being in theentertainment film, in automobiles, inmedicines, in services, in industries, etc



d i b i h h



&n a dynamic business scheme, one has tocarefully watch is one of the basic idea

degenerating as regards

Its ability to generate <uick returns$

Its ability to permit <uick changes in the products$

should hae*



2 pro#ect is a comple# of economic activities in

which the key players commit scarcelimitedresources in the e#pectation that the benefitsgained will e#ceed these resources

2lso, a pro*ect, broadly defined, in a way ofusing resources% a decision betweenundertaking and not undertaking a pro*ect is achoice between attentive ways of using

resources The pro*ect should have to consider the ")OT

and should be designed accordingly

The ")OT approach compels individuals to



"trength8 is an inherent capacity, which anorgani3ation can use to gain strategicadvantage over its competitors

)ea%ness8 is an inherent limitation orconstraint, which creates a strategic

disadvantageOpportunit-% refers to any factor that offerpromise or potential for moving closer or more+uickly towards the firms goal

Threat% is any factor that may limit or impedethe business in the pursuit of its goals



To be a successful entrepreneur, one ma*or

determinant factor is the choice of a goodbusiness idea To select the best businessidea, the following steps needs to be pursued

R Identify your problemR Define your ob-ectives

R Identify* develop and analy,e the possiblealternative

R .elect the best alternative in light of thespecific criteria set to the better fulfillment ofthe ob-ective$

"teps in &usiness setting



/ The first key to success in any

manufacturing activity is to select the rightproduct These must be e#amined with aview to assess%

Rhe marketing aspects

Rechnical aspectsR "inancial aspects

1 (aving selected a product a detailed



1 (aving selected a product, a detailedpro*ect report to be prepared This will

cover the following aspectsR A detailed estimate of demand is to be made$

R echnical specifications of the process shouldbe carefully studied$

R he e<uipment re<uired and their sources areto be specified

R %e<uirement of space$

R he total cost of the pro-ect to be !orked out*

the means for financing it identifiedR he economics of the entire scheme at pro-ected operating level is to be assessed$

4 &mplementation of the detailed pro*ect report



&ncludes%

a$Deciding on form of o!nership and registration

b$>btaining finance *>btaining license

c$ Establishing necessary infrastructures

6 'nce all the re+uired authori3ations and sanctions

have been obtained, simultaneous action is to betaken for the following re-commissioningre+uirement

R >rdering machinery from suppliers

R>btaining utilities like po!er and !aterconnections after constructions of shed* ifnecessary$

R %ecruitment of staff*

R Arranging supplies of materials

N ' th l t th l t i d f



N 'nce these are complete, the plant is ready forcommissioning trial run may be made

Commissioning of plant, &ncludes%

a$rial run of machineries

b$=romotional activity for the product

c$ Introduce the product to the market and obtainfeedback

O The unit is then ready for commercial

productiona Commercial production

his is all about the feasibility study pre&after

implementation

.EDELOPI/ #0"I/E"" PL/



)T I" #0"I/E"" PL/*2 business plan is a comprehensive set of

guidelines for a new venture

2 business plan is also called a feasibility planthat encompasses the full range of businessplanning activities, but it seldom re+uires thedepth of research or detail e#pected for an

establishment enterprise

2 business plan would present your basicbusiness idea and all related operating,marketing, financial and managerial



7hat ever the name, it should lay out your

idea, describe where you are, point out whereyou want to go, and how you propose to gothere

The business plan may present a proposal forlaunching an entirely new business Morecommonly, perhaps! it may present a plan for ama*or e#planation of a firm that has already

started operation

PL/



#$It can help the o!ner/manager crystalli,e andfocus his/her idea

6$ Although planning is a mental process* it mustgo beyond the realm of thought$ hinking about

a proposed business becomes more rigorous asrough ideas must be crystalli,ed and <uantifiedon paper$

7$It can help the o!ner/manager set ob-ectivesand give him a yardstick against !hich tomonitor performance

8$It can also use as a vehicle to attract any



9$It can convince investors that theo!ner/manager has identified highgro!th opportunities

:$ It entails taking a long1term vie! of the

business and its environment$

@$ It emphasi,es the strengths andrecogni,es the !eaknesses of the

proposed venture$ $ he plan can uncover !eakness or alert

the entrepreneur to sources of possibledanger

7(E= T(E ;U8&=E88 02=8 25E5'DUCEDB



t the start up o a ne!&usiness8

#usiness purchase%

On going8

$aor decisions%

)O P'O.0CE. TE #0"I/E"" PL/*



o$anagers%, O!ners%, Lenders8

?H !HE B+,2CE,, 5AC, ARE5RD+9ED

Assessing the feasibility and viability of thebusiness/pro-ect % it is in every ones interests to makemistakes on paper, hypothetically testing forfeasibility, before trying the real thing

.etting ob-ectives and budgets% having a clearfinancial vision with believable budgets is a basicre+uirement of everyone involved in a plan

Balculating ho! much money is needed% a detailed

T(E '5M2T ' 2 ;U8&=E88 02=



1 )here are !e no!*

2n analysis of the current situations of themarket place, the competitions, the businessconcept and the people involved &t will includeany historical background relevant to the

positions to date

2 )here do !e intend going*

Sualitative e#pression of the ob*ectives,

+uantifiable targets will clarify and measureprogress towards the intended goals

3 o! do !e et there*

C'M'=E=T8 ' ;U8&=E88 02= .'UT 0&=E ' 2;U8&=E88 02=<

I l i th t it ti h



1 Identiication o the &usiness

a Introduction

- relevant history and background

- roposed date for commencement of trading

beginning of a plan& /ames

-name of the business and trading name

- name of the managersownersc Legal identit-

-companypartnershipsole-tradecooperative- details

of share or capital structure

Inal-sis o the current situation "hereare "e no"7



2 The %e- peoplea Eisting management- 'utline of

background e#perience

, skills and knowledge

-=ames of the managementteam

& Future re<uirement -gaps in skills ande#perience and how they will be filled ,-

future recruitment intentions



3The nature o the &usiness a Products7or serices7,Description and

applications

-?ey suppliers

-lanned developments ofproduct or service

& $ar%et and customers

Definition of target market,classification of customers

- Trend in market place

c Competition- description of competitors!

II F0T0'E .I'ECTIO/ !here do !e intendgoing*7



III I$PLE$E/TTIO/ OF I$ ho! do !e getthere*7



1 $anagement o resourcesa7 Operation8,premises, materials, e+uipment,

insurance, management information system

&7 People(uman resource- employment practices,recruitment, team management, training etc

2 $ar%eting plana7Competitie edge- uni+ue selling point of

business .Critical products or service characteristicsor uni+ueness in relation to competitors<

&7 $ar%eting o&ecties - specific aims for productor service in the market place

c7 $ar%eting methods- product, pricing, promotion,distributions96ps



3 $one-8 inancial anal-sisa Funding re<uirement- start up capital,

working capital, asset capital, timing of fundsre+uired, security offered

& Proit and loss8,- 4 years forecast, salesvariable costs, profit, overheads, net profit

c Cash lo!8,- 4 years forecast, receipts,payments, monthly and cumulative cash flow

d #alance sheet - use of funds, sourcefunds

ssignment 28 !rite the difference b/n

feasibility study and business plan 'brief



Part our8 $ar%eting in #usinessenterprises

6/ The Marketing erspective

61 Marketing Mi#-product, price, place,and promotion,

64 Marketing segmentation andmarket research,

66 actors affecting the ;usinessEnvironment

TE $'=ETI/PE'"PECTIDE



.einition o $ar%et%Market is a group of potential customers

having needs to satisfy, ability to buy willingness to pay in order to satisfy these

needs'5

2 social F managerial process by whichindividuals groups obtain what they need want through creating e#changing products value with others



The main concepts o mar%eting

Marketing activities are integrated

'rgani3ations are market oriented

Marketing focuses on selected markets

Customer satisfaction is the core of marketing

Marketing starts early before production continues after sellingKTKdiscussB

TE $'=ETI/ $I



2 marketing organi3ation has to concentrate

on four important aspects known as the 4PGs of marketing

The marketing manager has to combine these6 )s .P'O.0CT, P'ICE, P'O$OTIO/ and

PLCE< in such a way that the combinationprovides satisfaction to the customer and profitto the manufacturer

7hen these elements .6 )s< are combinedtogether they are called as "The $ar%eting$i$

1The product mi8 Includes%=roduct planning and

3 Place miPh-sicaldistri&ution mi78



=roduct planning anddevelopment

Cranding =ackaging4abeling

2The price mi8 Includes

=rice polices.kimming pricing '=ricing

above the market(

=enetration pricing '=ricingbelo! the market(

=remium pricing '=ricing!ith the market(

Discounts

uantity discount .easonal

distri&ution mi78 Bhannels of

distribution ransportation Warehousing

4 Promotion mi8

Includes Advertising =ersonal selling .ales promotion

=ublicity

I TE P'O.0CT $I



5roduct % &s any commodity that satisfies the needs wants of customer

&t is a bundle of tangible intangible attributes, whichsatisfy the needs, wants of customers

&n today market, a product can be

o2 person .soccer players<, 'rgani3ation.privati3ed firms<,

olaces .leased land<, 'b*ects.items<,

o &dea .business plans or pro*ect proposal<,

o8ervices .medication or barber<, or mi#es ofthese elements

8o, a product can be defined as anything, which

$.5roduct planning and deelopment



p g p

roduct planning includes three ma*or types ofdecisions%Development and introduction of ne! products

2odifications of existing products in keeping!ith the changing tastes and preferences ofthe target customers and

Elimination of unprofitable or obsolete

products

&. Branding



• #rand name% the part of a brand, which consists ofword, letters andor numbers, which can be

vocali3ed Eg 'M', Coke

#rand mar%8 the part of a brand that can berecogni3ed but is not utter able &t can appear in theform of symbol, design, distinctive coloring orlettering

Trademar%8 a brand or part of a brand that hasbeen given legal protection so that the owner has

e#clusive rights to its use 2fter companies identifytheir trademark, they entail a term "V$ or "W$

!rade Came: Trade name is the name of the

business organi3ation 2 trade name may also

2mportance of a brand

he brand makes it easier for the seller to process



he brand makes it easier for the seller to processorders and track do!n problems$

he seller;s brand name and trademark provide legal protection of uni<ue product features$

Cranding gives the seller the opportunity to attract a

loyal profitable set of customers and helps toincrease the control and share of the market$

Cranding helps the seller to segment markets andexpand the product mix$

ood brand help to build the corporate imagebecause it advertises the <uality and si,e of thecompany$

Crands make it eas for customers to identif

ReGuirements of a good brand



Ce easy to pronounce* recogni,e and

remember

Ce distinctive$

.uggest something about the product;sbenefits or characteristics

.uggest about the product <ualities such asaction or use$

Ce large enough to be applicable to ne! products that may be added to the productline$

'.5ackaging

k i i k i d



ackaging is a marketing process concernedwith the design and production of the

container or wrapper for a product

The container or wrapper or covering is calledthe package

2mportance of packaging

#$=ackaging serves several safety and utilitarian purposes

6$=ackaging may implement a company;smarketing program

7$Well1packaged products may increase profit possibilities in that it stimulates customers to

pay more -ust to get the special package

(.abeling



1#rand la&el8 simply the brand alone applied tothe product or to the package

2 rade la&el8 a label, which identifies the+uality with, a letter, number or word

3 .escriptie la&el8 it gives ob*ectiveinformation about the use, construction, care,performance or other features of the product8ometimes it is called informatie label

Eg medicines

22. !HE 5R29E 62



)T I" P'ICE*

&s the amount of money consumers have topay to obtain the product

rice has operated as the ma*or determinant

of user choice traditionally

2lthough non-price factors have become moreimportant in recent decades price still remains

one of the most important elementdetermining market share and profitability

Different companies set the price hapha3ardlyas based on cost

6E!HD, 4 5R292CI



1Cost plus pricingA $ar% 0p pricingA

2 "%imming pricing The following conditions should be satisfied

#$ A sufficient number of buyers have a highcurrent demand$

6$he high initial prices do not attract morecompetition to the market$

7$he high price communicates the image of asuperior product$

3Penetration pricing8 &elo! mar%et price

6 Premium pricing8 !ith mar%et



The ma*or ob*ectives of pricing are%

2chievement of target returnMa#imi3ation of profit&ncrease of sales volumeMaintenance or increase of market share

8tabili3ation of prices Meeting competition



Direct channel

1 .oor to door selling



1.oor,to,door selling

2$anuacturersG sales &ranches

3.irect mail

2ndirect channel

1$erchant $iddlemen8,

• 7hole seller%- Eg etram 0C and East 2frica Trading are wholesalers of consumer products

• 5etailer%- Eg (adiya supermarket, and several?iosks are found closer to sell the items to

residential houses1 gent $iddlemen

Commission agent, ;rokers, 8elling agents,

Eg -8ony lorious, is an agent to 8ony

Electronics products

9hannel leels



Manufacturer

Consumer

Lero-levelManufact

urer

5etailer

Consumer

'ne-levelManufact

urer

5etailer

7holesaler

Consumer

Two-levelManufact

urer

2gent

7holesaler

5etailer

Consumer

Three-level

2J. 5R6!2C 62

& ti k k ti



&s sometimes known as marketingcommunication

Means activities that communicate themerits of the product persuade targetcustomers to buy it

romotional ob*ectives%Informing the product Increasing sales.tabili,ing sales / profit

=ositioning the product

The promotional mi# consists of four ma*or



The promotional mi# consists of four ma*ortools

Advertising0 such as informative 2d, ersuasive2d and 5eminder 2d

=ersonal selling 'ral presentation in

conversation with one more consumers for thepurpose of making sale

.ales promotion &ncludes% gifts, games,sampling, coupons, and window displays

=ublicity 2ny information about theorgani3ation, its personnel or its products thatappears in any medium on a non - paid basis

$'=ET "E$E/TTIO/

Market segment is a group of individuals or



g g porgani3ations within a market that share one or

more common characteristics The process of dividing a market in to segments is

called market segmentation

#ases or mar%et segmentation$.Ieographic segmentation:- %egion rban*

.uburban* %ural* 2arket density* Blimate* errain'land* topography(* Bity si,e* Bountry si,e* .tate si,e

2Demographic segmentation:- Age* ender* %ace*Ethnicity* Income* Education* >ccupation* "amily si,e*"amily life cycle* %eligion* .ocial class

'.5sycho graphic segmentation:- =ersonality

$'=ET 'E"E'C



/6arketing research is the systematicrecording and analysis of data about problems relating to marketing

American 2arketing Association

16arketing research is the application ofscientific method to the solution ofmarketing problems.

4uck* Wales* aylor

It is important for any business to conduct itbefore established *ongoing business andfuturity5$



Part ie8 Financing andaccounting in &usiness

N/ inancial re+uirement

N1 8ources of finance,

N4 control of financial resource

N6 financial analysis and accounting'reading ass$$(

.EDELOPI/ FI//CIL PL/



ro*ect implementation re+uires bringingtogether the inputs of land, labor,machinery, staff etc

inance is re+uired to assemble theseinputs

roper financing of business is essential for

success in both small and large enterprises

Financial planning is the process offormulating policies and strategies relating to



the procurement, investment and

administration of funds for an enterprise7hile formulating a financial plan, the

entrepreneur has to answer the following+uestions%

(ow much money is neededB7here the money comes fromB7hen should the money be availableB

These three +uestions are concernedrespectively with the estimation of financialneeds, sources of finance, and the time ofraising funds

"O0'CE OF FI//CE



Internal sources EGuity capital 7



'wners capital or owners e+uity represent

the personal investment of the owner orowners in a business, and it is sometimescalled risk capital because these investorsassume the primary risk of losing their funds

if the business fails

&t re+uires no repayment in the form of debtand much safer for new ventures than debt

financing &t also re+uires sharing the ownership and

profits with the funding sources

"ource o e<uit- capital8

P l i



1 Personal saings

• The first place entrepreneurs should take forstart up money is in their own pockets or ontheir pool of personal savings

• &t is the least e#pensive source of fundsavailable

• 2s a general rules, entrepreneurs should

e#pect to provide at least half of the start upfunds in the form of e+uity capital

• &f the entrepreneur is not willing to risk his

own mone otential investors re not likel

2 Friends and relaties%



2 Friends and relaties%

• ;ecause of their relationships with thefounder, these people are most likely toinvest ;ut having them invest can lead to

controversy if their participation is not clear toeveryone

• To avoid such problems, and entrepreneurmust honestly present the investmentopportunity and the nature of risks involved toavoid alienating friends and family members ifthe business fails

3 ngels



• These private investors .or angels< arewealthy individuals, often entrepreneursthemselves, who invest in business start upsin e#change for e+uity stakesin the companies

• Due to the inherent risks in start upcompanies, may venture capitalists haveshifted their investment portfolios away form

startups toward more established firms

• 2ngles will often finance the deals that noventure capitalists will consider most angles

have substantial business and financial

4 P t



4Partners%

• 7henever an entrepreneur gives up e+uity inhisher business .through what evermechanisms<, heshe runs the risk of losing

control over it

• 2s the founder)s ownership is a companybecomes increasingly diluted, the probability

of losing control of its future directional andthe entire decision making process increases

5 Denture capital companies



• venture capital companies are private, for profit

organi3ations that purchases e+uity positions inyoung businesses they believe have highgrowth and high profit potential

• They provide start up .seed money< capital tonew ventures,

• Development funds to businesses in theirearly growth stage, and

• E#pansion funds to rapidly growing venturesthat have the potential to go public or thatneed capital for ac+uisitions

•



6 Pu&lic stoc% sale going pu&lic7

• This is an effective method of raising largeamounts of capital, but it can be an

e#pensive andtime-consuming process filled with regulatory nightmares

# Eternal source Debt capital 7



• ;orrowed capital or debt capital is the

e#ternal financing that a small businessowner has borrowed and must repay withinterest

• 8mall enterprises have few choices than largefirm for obtaining debt financing

• 2lthough borrowed capital allowsentrepreneurs to maintain completeownership of their business, it must becarried as a liability on the balance sheet as

well as be repaid with interest at some point

1Commercial &an%s



&n most cases commercial banks give

• 8hort-term loan .repayable with in one year orless< and

• Medium term loan .maturing in above one yearbut less than five years< as a working capital

• 0ong term loans .maturing in more than fiveyears< for the purchase of property or e+uipment

or as a pro*ect loan, with the purchased asset orthe pro*ect itself serving as collaterals

unsecured and secured loans



2n unsecured loan is a loan in which collateral

is not re+uested

That is the loan is granted against personalguarantee or corporate customers of the bank

Unsecured loans will have high interestcharges but this may not be necessarilyapplicable by all banks

To secure a bank loan, an entrepreneurtypically will have to answer a number of



yp y+uestion, together with descriptive

commentaries

)hat do -ou plan to do !ith the mone-credit acilit-7*

o! much do -ou need*)hen do the- need it*o! long !ill -ou need it*o! !ill -ou repa- the loan*



1Trade credit



• &t is credit given by suppliers who sellgoods on account

• This credit is reflected on the

entrepreneur)s balance sheet as accountpayable and in most cases it must be paidin 4I to HI or more days interest freebecause of its ready availability

• etting suppliers to e#tend credit in theform of delayed payments usually is mucheasier for a small business than obtainingbank financing

4E<uipment suppliers



• Most e+uipment vendors encourage business

owners to purchase their e+uipment byoffering to finance the purchase

• &n some cases, the vendors will repurchasee+uipment for salvage value at he end of itsuseful life and offer the business owneranother credit agreement on new e+uipment



N ccounts receia&le inancing

• 8hort term financing that involves eitherthe pledge of receivables as collateral for a

loan or the sale of receivables .factoring<

• 2ccount receivable bank loans are made ona discounted value of the receivables

pledged



O Credit 0nions%

P Insurance Companies%

X #onds

H Treasur- &ill

(ow to prepare financial statement naccounting Kread

If time c sm pts abt accounting5$



Part si8, 'is% and insurance o #usiness

enterprises

O/ Definition of 5isk,

O1 The process of 5isk

management,O4 Classifying risks by Type of

2sset,

O6 &nsurance of the 8mall

;usiness

.EFI/ITIO/ OF 'I"=

'is% eists !heneer the uture is



'is% eists !heneer the uture isun%no!n ;ecause the adverse effects of risk

have plagued mankind since the beginning oftime, individuals, groups and societies havedeveloped various methods for managing risk"ince no one %no!s the uture eactl-+

eer-one is a ris% manager or himsel &e,not by choice but by sheer necessity

oE#ample% &n buying a tire, we may have achoice There is no sheer necessity

The term risk used in different ways Thef ll i d fi iti i b diff t h l



following definitions given by different scholars

and practitioners in the field%%isk is the channel of loss%isk is the possibility of loss%isk is uncertainly%isk is the dispersion of actual from expected

result%isk is the probability of any outcome different

from the one expected

enerally, it has bad/negative connotation

#usiness ris%s can &e classiied into t!o &road



categories%

1$ar%et ris% is the uncertainty associated with aninvestment decision 2n entrepreneur who invests ina new business hopes for a gain but reali3es that theeventual outcome may be a loss

2Pure ris% is used to describe a situation where onlyloss or no loss can occur-there is no potential gain

2 pure risk e#ists when there is a chance of loss butno chance of gainprofit E#ample% 'wner of anautomobile faces the risk of a collusion loss &fcollusion occurs, he will suffer a financial loss &fthere is no collusion, the owner will not gain

'I"= $/E$E/T

Th l it f th b i i t



The comple#ity of the business environment

calls for or demand for a special attention to arisk%

The special task to&dentify

2naly3eCombat and the operating risks are referred to as

ris% management

…ዲስከስ below

8ome of the factors, which increase thecomple#ity of environment, are%&nflationrowth of internal operation

)hat is ris% management* 5isk



)hat is ris% management* 5iskmanagement is a systematic way of protectingbusiness resources and income against lossesso that the organi3ation)s aims are reachedwithout interruption, creating stability andcontributing to profit

5isk management is broader than insurancemanagement in that it deals with bothinsurable and uninsurable risks &nsurance



insurable and uninsurable risks &nsurance

management for most part it is restricted tothe area of those risks that are considered tobe insurable

The emphasis in the risk management conceptis on reducing the cost of safeguarding againstrisk by whatever means



&.!o estimate the freGuency and size ofloss ie, to estimate the probability of lossfrom various sources &t is also called as risk



from various sources &t is also called as risk

measurement 5isk measurement means

i Determination of the chance of an occurrenceor relative fre+uency

iiDetermination of the impact of losses uponfinancial affairs

iii The ability to predict the losses that willactually occur during the budget year

'.!o decide the best and most economicalmethod of handling the risk if loss



method of handling the risk if loss.

i$e$ .election of the proper tool forhandling risk

(. 2mplementing the decision

;.Realuating the decision

Tools o 'is% $anagement

1 oidance



'ne way to handle a particular pure risk is to avoid

the property, person or activity with which the riskis associated

Two approaches of risk avoidance%

i. Refusing eg or instance, a firm can avoid a flood loss by

not building a plant in a place where flood isfre+uently affecting &n case of refusing, we arediscontinuing the activity

ii Abandonment

eg 2 firm that produces a highly to#ic productmay stop manufacturing that product

2 'etention

;earing all the risk by that personorgani3ation



Types of retention

i PlannedAconsciousA actie ris% retention&t is characteri3ed by the recognition that the

risk e#ists, and tacit agreement to assume the

losses involved The decision to retain a risk actively is made

because there are no alternatives moreattractive

8elf-insurance is a special case of activeretention 8elf-insurance is not insurance,because there is no transfer of the risk to anoutsider

oE g 2 firm may keep some money to retain

ii 0nplannedA0nconsciousA Passie'etention



'etention

assive risk retention takes place when theindividual e#posed to the risk does notrecogni3e its e#istence

&n this case, the person so e#posed retains thefinancial conse+uence of the possible losswithout reali3ing that he does so



4 "eparation A.iersiication

8eparation of the firm)s e#posures to loss instead ofconcentrating them at one location where they



concentrating them at one location where they

might all be involved in the same loss8eparation99:Dispersion8cattering the e#posure

in different places

"Don/t put all your eggs in one basket $

E#ample% &nstead of placing its entire inventory inone warehouse, the firm may elect to separate thise#posure by placing e+ual parts of the inventory inten widely separated warehouses

5 Transer

&t is also called as shifting method



s a so ca ed as s g e od

7hen a business organi3ation cannot afford tocover the loss by itself, it may look fortransferinstitutions

&nsurance is a means of shifting or transferringrisk

CL""IFHI/ 'I"= #H THPE OF ""ET

1Propert- ris%s

roperty oriented risks involve tangible and highly



roperty-oriented risks involve tangible and highly

visible assets Many property-oriented risks areinsurable! they include%

"ire * Hatural disasters* Curglary* Cusinesss!indles 'or fraudulent transactions ( and*.hoplifting$

2Personnel ris%s

ersonnel-oriented losses occur through the actionsof employees The three primary types of

ersonnel-oriented risks are%Employee dishonesty* Bompetition from former

employees* 4oss of key executives

3Customer ris%s

Customers are the source of profit for smallbusiness, but they are also the source of an



yever-increasing amount of business risk Much of

these risks are% >n1premises in-uries and =roductliability

>n1premises in-uries%

Customers may initiate legal claims as a result ofon-premises in*uries

7hen a customer breaks an arm by slipping on icysteps while entering or leaving a store!

&nade+uate security, which may result in robbery,

assault, or other violent crimes! Customers who arevictims often look to the business to recover theirlosses

=roduct liability0

2 roduct liabilit suit ma be filed when a customer

I/"0'/CE FO' TE "$LL #0"I/E""

1 #asic principles or a sound insuranceprogram



program

;asic principles in evaluating an insuranceprogram include%Identifying insurable business risks

4imiting coverage to ma-or potential losses and

%elating premium costs to probability of loss

2'e<uierments or o&taining insurance

#$ here must be a sufficiently large number of

homogenous exposure units to make the lossesreasonably predictable$

o &nsurance is based on the operation of the law oflarge numbers

o There must be a large number of e#posures and

6$ he loss produced by the risk must be definite andmeasurable

The loss must have financial measurement or



financial implication

The risk must be calculatedEample8 or instance a person may purchase

disability insurance (ow do we know that theperson is unable to doB Thus, the risk must be

definite and measurable

7$ he loss must be fortuitous or accidental$ie the loss must be the result of a contingency, ie,

it must be something that may or may not happen&t must not be something that is certain to happen

7ear and tear or depreciation, which is a certainty,should not be insured =o protection is given by

insurance

8$ he loss must not be catastrophic

2ll or most of the ob*ects in the group should not



suffer loss at the same time because the

insurance principle is based on a notion ofsharing losses

Eample8 Damage which results from war,flood, windstorm and so on would becatastrophic in nature and hence do not haveinsurance

9$ he loss must be large loss$

The risk to be insured against must be capable ofproducing a large loss, which the insured could notpay without economic distress

&ncase the loss occurs, it must be severe that must

:$ %easonable cost of transfer

ie% the probability of loss must not be too highb th t f t f t d t b i



because the cost of transfer tends to be e#cessive

To be insurable, the chance of loss must be small The more probable the loss, the more certain it is tooccur

The more certain it is, the greater the premium willbe ;ut to make insurance attractive, the premiumhas to be for less than the face of the policy orinstance, a life insurance company to issue a birr/III policy on a man aged HH The net premiumwould be about birr HXI



The end

5isk management is the identification,measurement and treatment of liability, propertyand personal pure ris%s that the business

i ti i f i



organi3ation is facing

&t is the science that deals with the techni+ues offorecasting future losses so as to plan, organi3e,direct and control the adverse effect of riskie, 5isk management is defined on the base of

managerial functions

&t is the reduction and prevention of the unfavorableeffects of risk at minimum cost through its

identification, measurement and control&t is a discipline a profession that systematically

identifies and analy3es the various loss e#posuresfaced by a firm or an organi3ation and employees

5 Com&ination

5isks are pooled when the number ofindependent e#posure units under observation



independent e#posure units under observation

is increased

Unlike separation, which spreads a specifiednumber of e#posure units, combinationincreases the number of e#posure units underthe control of the firm

&n the case of firms, combination results in thepooling of resources of two or more firms The

new firm has more building, moreautomobiles, and more employees than eitherof the original companies This leads tofinancial strength, thereby minimi3ing the

adverse effect of the otential loss

6 /eutrali@ation

=eutrali3ation, which is very closely related tot f



transfer

&t is the process of balancing a chance of lossagainst a chance of gain

Eg 2n e#cellent e#ample is the process of makingcommitments on both sides of transaction in such

a way the risks compensate each other The following matri# can determine which risk

management be used

CCO0/TI/ FO' "$LL #0"I/E""

fi i l d ti d k it



roper financial and accounting records make it

possible for the owner to e#ercise effectivecontrol of funds and overall performance ofhisher business

8uch records also make it possible to knowwhether the firm is earning profits or loss

2ccounts also help to know the financialposition of the business at any time and at theend of the fiscal year

#0"I/E"" T'/"CTIO/ /. CCO0/TI/ E?0TIO/

b i i i h f



2 business transaction is the occurrence of an

event or of a condition that must be recorded The payment of a monthly telephone bill, The purchase of merchandise on credit and The ac+uisition of land and a building are

e#amples of business transactions

2 particular business transaction may lead to anevent or a condition that result in another

transactionor e#ample, the purchase of merchandise on

credit will be followed by payment to thecreditor, which is another transaction

The accounting e<uation

2ssets are the properties owned by a businessenterprise or any thing of value owned by a



enterprise or any thing of value owned by a

business enterprise

The rights or claims to the properties arereferred to as e+uities

The sum of assets is e+ual to that of the sum ofe+uities

E+uities may be subdivided into two principal

types%o the rights of creditors and

o the rights of owners

5ights of creditors represent debts of the

E#pansion of the e+uation to give recognitionto the two basic types of e+uities yields the



yp + y

following, which is known as the accountinge<uation%

ossets e<uities

ossets creditorGs e<uities J o!nerGse<uit-

ossets lia&ilities Jcapital

&t is customary to place "liabilities" before"owner)s e+uity$ in the accounting e+uationbecause creditors have preferential rights tothe assets

ssets% any physical thing .tangible< or right.intangible< that has a monetary value is an

ssets



.intangible< that has a monetary value is an

asset 2ssets are customarily divided into two%

9urrent assets% are cash and other assetsthat may reasonably be e#pected to be reali3ed

incase or sold or used up usually within oneyear or less, through the normal operations ofthe business

E#ample% cash, accounts receivable, notes receiva

ble, supplies, prepaid e#penses, stock .inventory<,etc

5lant assets% are tangible assets used in thebusinesses that are of a permanent or relatively

Lia&ilities%

Lia&ilities% are debts owned to outsiders



.creditors< 0iabilities are fre+uently described onthe balance sheet by titles that include the word"5ayable$

/9urrent liabilities% are liabilities that will be due

within a short time .usually one year or less< andthat are to be paid out of current assets

E#ample% notes payable, accounts payable,salaries payable, interest payable, ta#espayable

1ong-term liabilities% are liabilities that will bedue for a comparatively long time .usually morethan one year< it is also known as fi*ed liabilities

O!ner e<uit-

O!ner e<uit-% is the residual claim against



the assets of the business after the totalliabilities are deducted or a corporation,owner)s e+uity is fre+uently called stockholderse<uity , shareholder;s e<uity or stockholder;sinvestment

Capital% is the owner)s e+uity in a sole proprietorship.and partnership<

Capital stoc% % represents the investment of thestockholders

'etained earnings% represents the net incomeretained in the business

.iidends8 represents the distribution ofearnings to stockholders



'eenue8 is the amount charged to customersfor goods or services sold to them &t is anincrease in capital that resulted from thenormal operation of the business E#ample%

rofessional fees, commissions revenue, faresearned, interest income, etc

Epense% costs that have been consumed inthe process of producing revenue are e#pired

costs or e#penses &t resulted in a decrease incapital E#ample% 7ages e#pense, rente#pense, supplies e#pense, utilities e#pense,etc

statements

Financial statements% 2fter the effect of theindividual transactions has been determined the



individual transactions has been determined, the

essential information is communicated to users Theaccount statements that communicate thisinformation are called financial statements

The principal financial statements are the incomestatements the statement of owner)s e+uity, thebalance sheet and the statement of cash flow

The financial statements prepared for soleproprietorship, partnership and corporation are almost

the same

The ma*or difference is in the capital section of thebalance sheet

Income statement% a summary of the revenueand the e#penses of a business entity for aspecific period of time, such as a month or ayear



y

#C trading

Income statement

For month ended .ecem&er 31+ 2KK4

"ales/I,III

Operating epenses%

7ages e#pense 4,III

5ent e#pense 1,III 8uppliers e#pense 1,III

Utilities e#pense PNI

Miscellaneous e#pense 1NI

,tatement of o"ner/s eGuity is a summary ofthe changes in the owner)s e+uity of a business



entity that have occurred during a specific periodof time such as a month or a year

#C trading

"tatement o o!nerGs e<uit-For month ended .ecem&er 31+ 2KK4

&nvestment during the month/N,III

=et income for the month 1,III

0ess withdrawals NII

&ncrease in owner e+uity

/ NII

#alance sheet% is a list of the assets, liabilities andowner)s e+uity of a business entity as of a specificdate, usually at the close of the last day of a month or

year



y

#C trading#alance sheet

.ecem&er 31+ 2KK4

ssets

Cash/I,III

8upplies/,III

0andX,III

Total asset/H,III

Lia&ilities

"tatement o cash lo!s

&t is a summary of the cash receipts and cashpayments of a business entity for a specific



payments of a business entity for a specific

period of time, such as a month or a year

&t is customary to report cash flows .cashreceipts and cash payments< in three sections%

/ perating actiities

1 2nesting actiities, and

4 4inancing actiities

#C trading"tatement o cash lo!s

For month ended .ecem&er 31+2KK4



Cash lo!s rom operating actiities8

Cash received from customers/I,III

0ess cash payments for e#pense and payments tocreditors .P,4II<

=et cash flow from operating activities1,PII

Cash lo!s rom inesting actiities8

Cash payments for ac+uisition of land.X,III<

Cash lo!s rom inancing actiities8

Cash received as owner)s investment

Banuar- Proections

/ 2;C pro*ects a beginning cash balance of Z1I,III

1 Cash receipts roduct manufacturing will not be



1 Cash receipts roduct manufacturing will not be

completed until ebruary, so there will be no sales(owever, service income of Z6,III is pro*ected

4 &nterest on the Z1I,III will amount to about Z/II atcurrent rate

6 There are no long-term assets to sell Enter a 3eroN 2dding /, 1, 4, and 6 the Total Cash 2vailable will be

Z16,/II

O Cash payments roduct will be available from

manufacturer in ebruary and payment will not be dueuntil pickup (owever, there will be prototype costs ofZN,III

P Aariable .selling< e#penses Estimated at Z/,/6I

X i d d i i t ti E ti t d t / 1/N

// ayments on long-term assets 2;C plans topurchase office e+uipment to be paid in full at the



time of purchase Z/,/4H/1 0oan repayments =o loans have been received

Enter 3ero

/4 'wner draws 'wner will need Z1,III for livinge#penses

/6 Total cash paid out 2dd O through /4 TotalZ/I,6H6

/N Cash balance 8ubtract Cash aid 'ut from TotalCash 2vailable .Z/4,OIO<

/O 0oans to be received ;eing aware of the Z4I,III tobe paid to the manufacturer in ebruary, a loan ofZ6I,III is anticipated to increase Cash 2vailable.This re+uires advance planning<

Fe&ruar- Proections

/ ebruary ;eginning Cash ;alance >anuaryEnding Cash ;alance .ZNX OIO<



Ending Cash ;alance .ZNX,OIO<

1 Cash receipts 8till no sales, but serviceincome is Z1,III

4 &nterest income ro*ected at about Z/1I

6 8ale of long-term assets =one Enter 3ero

N Total cash available 2dd /, 1, 4, and 6 Theresult is ZOI,P1O

O Cash payments Z4I,III due tomanufacturer, Z6II due on packagingdesign

P Continue as in >anuary Don)t forget to



Common ccounting Transactions0et)s suppose that 0ykun and elila have opened a localfeed and pet supply store During their first month ofbusiness several accounting transactions take place'wner &nvestments 0ykun and elila file articles of



'wner &nvestments 0ykun and elila file articles of

incorporation and receive their charter and businesslicense and begin their business as 0M, &nc They haveZPN,III of cash to invest in their new business The firstbalance sheet of 0M, &nc would show the asset Cash

and the E+uity of the owners

2s of right now, 0M has no liabilities and assets e+uale+uity The labels Cash and =et 7orth are called

urchase of 2ssets with Cash 0M decides topurchase a small land for Z/I,III and buildingfor Z6I,III This transaction doesn)t change0M)s total assets liabilities or e+uity but it does



0M s total assets, liabilities, or e+uity, but it doeschange the composition of the assets 2 key pointto remember is that the purchase of an assetdoesn)t affect owner)s e+uity The transactiondecreases Cash and increases two new accounts

called 0and and ;uildings%

urchase of 2ssets by &ncurring a 0iability 2ssetsmay be purchased with credit instead of with cash(owever, by using credit the business agrees topay the liability at a later date 0et)s suppose that



pay the liability at a later date 0et s suppose that

0M buys pet supplies for Z/,III on credit Thetransaction increases the assets .et 8upplies< andincreases the liabilities of 0M, &nc 2ssetspurchased on credit are still recorded for the fullamount at the time of purchase &t should bepointed out that this type of transaction increasesboth sides of the accounting e+uation to ZPO,III

The liability creates a new account called 2ccountsayable%

ayment of a 0iability 8hortly afterpurchasing the pet supplies, 0M decides topay ZNII of the Z/,III owed for the supplies2s a result both assets .Cash< and liabilities



2s a result, both assets .Cash< and liabilities.2ccounts ayable< decrease, but et 8uppliesis unaffected ayment of a liability doesn)taffect e+uity or the asset purchased withcredit ;oth sides of the e+uation are still e+ual

although they now have a new value ofZPN,NII%

5evenue 5evenues e+ual the price charged forthe sale of goods or services 0M, &nc earnsmoney .5evenue< by selling feed and pet supplies8ometimes these supplies are paid to 0M



immediately in the form of cash and sometimes acustomer asks for a credit account and agrees topay within 4I days &n either case, the sale isrecorded when it is earned 8uppose 0M sellshorse feed to a customer for Z1,III and is paid in

cash This transaction increases both assets .Cash<and owner)s e+uity .=et 7orth<%

=ow suppose that 0M sells Z/,III of steer rationto a 6-( member and agrees to wait for thepayment until after the local youth show and sale;ecause the money has been earned now, a bill or



ecause e o ey as bee ea ed o , a b o

invoice is sent to the youth and the transaction isrecorded now 5evenues are recorded when theyare earned, not necessarily when payment isreceived This revenue increases both assets andowner)s e+uity as before but a new asset account.2ccounts 5eceivable< is also created%

Collection of 2ccounts 5eceivable 0et)s saythat immediately after the youth show andsale the 6-( member comes in and pays ZNIIof the Z/,III that heshe owes The asset Cash



of the Z/,III that heshe owes The asset Cash

increases and the asset 2ccounts 5eceivabledecreases The transaction doesn)t affectowner)s e+uity because the revenue wasalready recorded in transaction O above &t

should be noted that the balance for 2ccounts5eceivable is ZNII indicating that anotherZNII is still to be paid to 0M%

E#penses E#penses are recorded when they areaccrued *ust as revenue is recorded when earnedE#penses may be paid in cash immediately or lateron &f an e#pense is going to be paid later on, a



liability .2ccounts ayable or 7ages ayable< iscreated &n either case, owner)s e+uity decreases8uppose that 0M, &nc pays Z/III to rent somee+uipment for their office and Z6II in wages to apart-time worker Each of these transactions reduce

assets .Cash< and e+uity .=et 7orth<%

0et)s also assume that 0M has not paid a Z6IIbill for utility e#penses incurred the previousmonth &n this transaction, the effect on owner)se+uity is the same as when the e#pense is paid in



e+uity is the same as when the e#pense is paid in

cash, but instead of a decrease in assets there isan increase in liabilities .2ccounts ayable<%

#rea% een anal-sis

'ne of the most common tools used inevaluating the economic feasibility of a new



evaluating the economic feasibility of a new

enterprise or product is the break-evenanalysis

The break-even point is the point at whichrevenue is e#actly e+ual to costs 2t this point,

no profit is made and no losses are incurred The break-even point can be e#pressed interms of unit sales or dollar sales That is, thebreak-even units indicate the level of salesthat are re+uired to cover costs

8ales above that number result in profit andsales below that number result in a loss Thebreak-even sales indicates the dollars of grosssales re+uired to break-even

;reak-even analysis is based on two types ofcosts% fi#ed costs and variable costs

i#ed costs are overhead-type e#penses that



yp p

are constant and do not change as the level ofoutput changes

Aariable cost are not constant and do changewith the level of output ;ecause of this,

variable e#penses are often stated on a perunit basis

'nce the break-even point is met, assuming

no change in selling price, fi#ed and variablecost, a profit in the amount of the differencein the selling price and the variable costs willbe recogni3ed

'ne important aspect of break-even analysis isthat it is normally not this simple &n manyinstances, the selling price, fi#ed costs or variablecosts will not remain constant resulting in a



change in the break-even2nd these changes will change the break-even

8o, a break-even cannot be calculated only once&t should be calculated on a regular basis toreflect changes in costs and prices and in order to

maintain profitability or make ad*ustments in theproduct line

There are three basic pieces of informationneeded to evaluate a break-even point%

2verage er Unit 8ales rice2verage er Unit Aariable Cost2verage 2nnual i#ed Costs

rofit 9 revenue-costrofit9.revenue<-.fi#ed cost .Cf< [ variable cost<

5evenue 9.selling price .<<J +uantity sold .S<<Aariable cost 9 .+uantity sold J variable cost per unit



Aariable cost 9 .+uantity sold J variable cost per unit.Cv<<

&n break even point the profit is assumed to be 3eroI9 .JS<-.Cf [ .SJCv<< .JS<-.SJCv<9Cf S.-Cv<9Cf S9Cf-Cv The basic e+uation for determining the break-even units

is9 2verage 2nnual i#ed Cost .2verage er Unit 8ales rice - 2verage er Unit Aariable

Cost<



Eample% 2 local livestock producer utili3escompost waste to develop an organic fertili3erproduct The fertili3er is prepared for retail salein NI pound bags The retail sales price is ZNII



p g p Z

per bag The average variable cost per bag isZ1XI and average annual fi#ed costs areZOI,III These three pieces of information are%

2verage er Unit 8ales rice 9 ZNII per bag2verage er Unit Aariable Cost 9 Z1XI perbag2verage 2nnual i#ed Costs 9 ZOI,IIIII

The above assumption can be utili3ed tocalculate the number of bags that must besold in order to break-even as well as the totaldollar of sales needed to break-even Using



g

the formulas e#plained earlier, the followingcalculations can be made%;reak-Even Units% ZOI,IIIII \ .ZNII -

Z1XI< 9 6@*6@7 bags

;reak-Even 8ales% ZOI,IIIII \ / - .Z1XI\ ZNII< 9 #7:*7:9

Therefore, no profits are made from the saleof this product until more than 1P,1P4 bags

are sold or more than Z/4O,4ON in gross salesis generated

ILL0"T'TIO/ 48 >ack)s rocery ismanufacturing a "store brand$ item that has avariable cost of 5s IPN per unit and a selling



variable cost of 5s IPN per unit and a selling

price of 5s /1N per unit i#ed costs are 5s/1,III Current volume is NI,III units Therocery can substantially improve the product+uality by adding a new piece of e+uipment at

an additional fi#ed cost of 5s N,III Aariablecost would increase to 5s /II, but theirvolume should increase to PI,III units due tothe higher +uality product 8hould the

company buy the new e+uipmentB 7hat arethe break-even points .5s and units< for thetwo processesB Develop a break-even chart$

1/X

"OL0TIO/rofit 9 % J B

Option 8 Current E<uipment;E 8ales in value .5s <



;E 8ales in value .5s<

;E 8ales in Suantity .Units<

Option #8 dding /e! E<uipment;E 8ales in value .5s<;E 8ales in Suantity .Units<rofit 9 NIIII J ./1N IPN< /1III 9 5s/4III

'ption ;% 2dd e+uipment%

rofit 9 PIIII J ./1N /II< /PIII 9 5sNII

Therefore, the company should continue as is withthe present e+uipment as this returns a higherprofit

1/H



11I



11/

FCTO'" FFECTI/ TE #0"I/E""E/DI'O/$E/T

/The macro enironment .far environment<



i Economic orces

2 %ising income

; Inflation

C %ecession012 recession is a period ofeconomic activity when income, production, andemployment tend to fall-all of which reduce demand

Thus businesses are e#pected to design differentstrategies that enable them overcome the problems

of inflation and recession

ii Legal and political actors

2 "ederal and state la!s

iii "ocial orces

2 Demographic forces

i$ =opulation gro!th



p g

ii Age distribution

; Bultural forces

C he consumer movement01&s a connectionof individuals, organi3ations and groupswhose ob*ective is to protect the rights ofconsumers

i Technological orces

1The microenironment .The nearenvironment<



The microenvironment refers the competitivesituation of an industry

The competitive environment refers to thenumber of competitors a firm must face, the

relative si3e of the competitors, and the degreeof interdependence within the industry

Competition in an industry arises from

i$ he po!er of buyers

ii$ he po!er of suppliers

iii$ he threat of ne! entrants

iv$ he threat of substitutes

orter claims that five forces determinecompetitiveness These are shown in figurebelow%



Economies o scale .ie the average si3e



of business varies from industry toindustry or e#ample, the average si3e ofchemical firms is very large, where as theaverage si3e of retail firms is relatively

small The most fundamental reason forthese differences in the e#tent ofeconomies of scale in an industry ie ho"the total cost per unit produced

changes as more units are produced <

7here to invest to get profit, 7hat to do about an employee who is always late, 7hat sub*ect will have top priority in meeting, etc

Decision-making is not a separate, isolated function



Decision making is not a separate, isolated functionof management but it is an integral component ofevery managerial function .ie in planning,

organi3ing, staffing, directing, controlling<

.ecision,ma%ing8,2t is the process of

selecting or choosing based on some

criteria the best alternatie amongalternaties

T-pes o .ecision

=rogrammed decisions 012re the decisions



that managers make in response torepetitive routine problems

These decisions are "rogrammable$because they are based on organi3ational

established policies, procedures rulesE*amples8 i &n Collage Enrolment,

ii &n ayroll processing

Hon1programmed decisions0 2re those made by

managers in a naval, comple#, orand e#tremelyimportant problem situation

They are called non-programmed because established



y p gpolicies, rules procedures can)t be employed it isdecision maker)s insights, *udgment creativity, whichhave paramount importance

They are going to deal with unusual types ofproblems or e#ceptional or special types ofproblems

They are time consuming in defining, identifying,

evaluating selecting one alternative They are broad, long-range made by

higher-level personnel The conditions for non-programmed decisions are



"teps in the process o rationaldecision,ma%ing8

Identi- .eine the pro&lemroblem is anything that hampers the achievement of goals



roblem is a necessary condition for a decision, ie, therewould be no need for decisions if problems did not e#ist

Esta&lish decision criteria &dentifying those characteristics that are important in

making the decision

.eelop lternatiesDevelop list as many possible alternatives solutions to the

problem as you can

Formulate

Goals

Evaluate

Decision

Situations

Analyze

Alternatives

Select

Alternatives

Implement

Decision

Evaluate &

Follow up

nal-@e the alternaties7hat are the advantages disadvantages of

each alternativeB



"elect the &est alternatie8elect the best alternative that suits to solve

our decision problem &n selecting the bestalternative, factors such as risk, timing

limiting factors should be consideredade+uately

Implement the solution utting the decision into action

Esta&lishing a control Ealuation"-stem'ngoing actions need to be monitoredollowing up decisions

Conditions

a Decision under certainty

E*ample% &f you decide to invest your money in



saving account in the Commercial ;ank of Ethiopia, ou are certain that you will earn ten percent

b Decision under uncertainty

E*ample% 2 corporation that decides to e#pandits operation in a strong country may know littleabout its culture, laws, economic environment, orpolitics The political situation may be so volatileth t t t di t ibl h

Enterprenuership for for Engineers (1)

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