Business Planning and Project Formulation
What the domain tests
Questions test DPR structure, feasibility types and basic financial appraisal.
Core rules
- Business plan/DPR sections: executive summary, promoter profile, product or service, market analysis, technical plan, organisation and management, financial plan, risk analysis and implementation schedule.
- Feasibility: market, technical, financial, economic, managerial and environmental.
- Project cost: fixed assets + working capital + preliminary and pre-operative expenses. Means of finance: promoter's contribution + term loan + working-capital finance; check debt-equity.
- Appraisal tools: break-even point, payback period, NPV, IRR, DSCR and sensitivity analysis.
- BEP (units) = Fixed cost ÷ (Selling price − Variable cost per unit).
Worked example
Fixed cost ₹80,000; selling price ₹50; variable cost ₹30; contribution ₹20. BEP = 80,000 ÷ 20 = 4,000 units. If expected sales are 5,000 units, margin of safety = 1,000 units, or 20%. A lender also checks DSCR: if annual cash accrual is ₹1.2 lakh and debt service is ₹1 lakh, DSCR = 1.2, acceptable but thin; a fall in sales would breach it.
Traps
Use contribution, not profit, in BEP. Keep fixed costs separate from variable costs. Do not present an over-optimistic sales forecast without evidence. Do not treat the DPR as a loan application form only-it is a decision document. Do not omit promoter contribution, working capital and contingency.