Prov Conf -talk 7- Mr.girish Kelkar

Challenges & Risks faced by SME units Girish Kelkar President PMI Pune Deccan India Chapter 25th Sept 2008 Hyderabad 1 © 2008 PMI Pune-Deccan India Chapter

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PMI Pune Deccan India Chapter Vision

Nurture for excellence!

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Some important achievements 

Chapter recognized as FASTEST growing chapter in Asia Region

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The Winner of 2007 PMI® Component Award for Component of the Year in the world

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Our Vice President – Shantanu Bhamare, PMP® is recipient of Volunteer Of The Year 2007 Award given by PMI USA for his Leadership & Outstanding Commitment to PMI Pune chapter and PMI activities

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Objectives of the presentation Objectives: 

To give brief about problems faced by SME Units in India (Pune as an

example) 

To discuss the following issues from Project Management:  Challenges faced by Small & Medium Enterprises in Pune about implementation of new ideas and projects  Challenges for Risk Management for these units

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To seek discuss possible solutions

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Running a SME unit is same as running a project!

Anything that can go wrong –goes wrong! © 2008 PMI Pune-Deccan India Chapter

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Running SME units

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Few details about Pune city  Pune is one of the oldest cities in India and has place of prominence in terms of Historical / Political / Social / Cultural / Educational / Religious and Industrial activities in the India today.  The city is more than 800 years old with rich cultural background and heritage  Area of the city 450sq Kms  Current population of (Pune_Pimpri_Chinchwad metro) over 50 Million  Pune has provided many freedom fighters (pre-independence for Indian Politics) and eminent thinkers in India

 Pune is cultural capital of the western India and will continue to hold this position for decades to come  Pune has earned a name for new idea generation and provided leadership to the country for many new initiatives in terms of cultural reforms and advances © 2008 PMI Pune-Deccan India Chapter

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Few details about Pune City  Pune has a place of pride for Education & Engineering activities & is one of the most sought-after cities for Quality Education and Scientific / Engineering Research  5 Major Universities, 100 affiliated colleges (28 Engineering Colleges, 5 Medical colleges) and over 300,000 Students in Pune  National Research Organizations  NCL & Biotech / MIRADO / IUCCA & Overseas Communication Centre etc  Super Computing Centre - CDAC  Indian Meteorological Department (IMD)

 Software Technology park - one of the largest in India  A new upcoming Biotech Park  Research centre for Sanskrit and Oriental Languages © 2008 PMI Pune-Deccan India Chapter

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Few details about Pune City Important centre for Defence Activities for India  HQ for Southern Command Indian Army

 National Defence Academy of India  Army School of Intelligence / Army School of Physical Training / Armed Forces Medical College / Artificial Limb Centre  Indian Air Force Centre for Western Command  Many Defence Research Organizations    

High Explosives Manufacturing Unit / Ordinance Depot Explosive Research & Development Laboratories Indian Armament Technology Centre (IAT) Armament Research & Development Establishment (ARDE) and many others

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SMEs in Pune 

Small and Medium sized Enterprises (SME) in Pune:  More than 10,000 small units (Average size 1 to 5 Mn USD)

 More than 500 medium sized units(Average size 5 to 10 Mn USD)

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SME supply components mainly to Large Mfg units or MNCs as Tier 1 or Tier 2 suppliers to large units

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SME in IT / ITES sectors also work as vendors / sub-vendors to larger IT companies

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The operations mainly dependent on the main promoters who have strong technical background

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Entrepreneurs are first generation entrepreneurs & do not have business background in the families

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Manufacturing in Pune 

Pune plays a pioneering role as the Manufacturing Hub in India with over 250,000 people involved in manufacturing activities.

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The city is full of Manufacturing units-Large as well as Small & Medium Enterprises / Auto-components industry for the world market.  Over the last 5 decades Pune has become a hub for the Automobile Industry for India / Asia  Many ancillary units supplying components for such Auto units  Pune has the largest two wheeler manufacturing facility in India (2nd largest unit in the world)  Pune has more than 100 large Engineering units     

Diesel Engine Manufacturing / Power Generators Complex Engineering Machinery for a variety of applications Project Engineering activities Electronic/Electrical Equipment Manufacturing units Many small and medium size pharmaceutical units © 2008 PMI Pune-Deccan India Chapter

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IT in Pune  Recently Pune has also become an important Hub for the ever growing IT / Software Industry in India.  Pune has over 100 large IT units / 500 Medium sized units & 2500 small units involved in the IT Industry  There is population of over 100,000 qualified IT personnel (IT & ITES) in Pune and Pune will continue to be an important location for the country

 Pune’s IT Industry has been catching up with Mumbai in terms of Software Exports in the last few years

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Business Environment of SME Units Units generally set up by technocrats using personal funds: 

These units are mainly dependent on larger customers for business

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SMEs do not have very good reach for marketing that restricts their volumes and makes them too dependent on large units (in spite of SME expertise in niches)

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SMEs are generally starved for funds and have to spend too much time for collections of Accounts Receivable & external funding arrangements

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Banks are not very keen on supporting these units for working capital due to uncertain business cycles and growth

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Too much time required to be spent with Govt. / Semi Govt. agencies

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Challenges faced by the SME units 

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Lack of adequate Management training and bandwidth amongst promoters of such units resulting in lack of:  Non-availability of Business plan leading to ad hoc decision making  Lack of Business & Financial discipline  Lack of Forward planning resulting in unforeseen situations  Lack of cognizance to even appreciate that there is a better way to manage the projects  Lack of inadequate internal systems Inability to attract & retain highly trained manpower in this segment since there is lot of poaching from larger units / MNCs in Pune

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Lack of succession plans and new generation not available for such causes

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Lack of awareness of modern Management practices and specifically Project Management practices and methodologies amongst them © 2008 PMI Pune-Deccan India Chapter

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Challenges faced by the SME units-contd 

Inadequate attention to financial disciplines and cash flow control (controllable & uncontrollable) affecting even the sheer existence of these units. This leads to:  Lack of available funds (perpetually caught up in this vicious cycle)  Inability to pay competitive wages / salaries to trained professional in working classes

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Lack of awareness of IPRs and legal issues (IPRs / Patents / Copyrights / Registrations) in these units

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Need for training of the leadership and Promoters of such units

One can easily appreciate that such situations are very common for SME units in and around Pune and in fact for all such units in India operating in such sector of the Industry.

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Risks Faced by SME Units  Management Risks  General Management skills / methods / training / attitudes  Perpetuation of the units as an ongoing concern

 Financial Risks  Lack of Financial Plans (Too many surprises & ad hoc decisions)  Funds & Cash Flow planning

 Marketing Risks  Reach & Net working  Dependence on few customers

Technology Risks (Scope / Costs / Quality)  Need for perpetual R&D  Technology obsolescence

 Human Resource Risks  Need for formally trained manpower  Ability to pay competitive wages

 Support Structure & Associates © 2008 PMI Pune-Deccan India Chapter

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Who would want to look like this when one grows old?? Running SME Unit?? © 2008 PMI Pune-Deccan India Chapter

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What would you want to look like when you grow old??

Managing SME Units is a challenge indeed!! Learn to anticipate risks and deal with them

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How do you run the business? Single-handed??

Look at the plight of Promoter of SME Is this a normal way?? © 2008 PMI Pune-Deccan India Chapter

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Risks faced by the SME Units in running normal operations

Promoter of SME units

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Project Process Groups

Risks all over

Effort

Execution

Planning Initiation

Closing

Control

Project Start

Project Complete

Time

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Risk Management Process

Identification

Strategy

Analysis

Risk Management

Control

Planning

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Period of greatest Risk Impact: Typical Project Environment Max Ability to Identify Risk / Opportunity

Amount of Stake Cost of Change

Risk

Ability to Change easily

Min

Planning

Definition

Implementation Termination

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Period of greatest Risk Impact: Typical SME Environment SME Organization has risk thr’ all over the phases & it is continues for ever! Think !

Max

Risk

Ability to Change easily

Amount of Stake Cost of Change

Critical Period for Risk Identification Planning & Control

Risks for SME units tend to be perpetual Min Planning

Definition

Implementation Ongoing-operation Time

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Risks faced by the SME units & Suggestions 

Management Team: Senior Management Team  

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Lack of formalized Planning process: Emphasis of Planning right from early stages  

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Lack / inadequacy of good planning practices right from the beginning This can be managed if right from the beginning you have planned for systems with requisite discipline & rigor . This has to be taken seriously but at times not given adequate attention

Costs / Finances / Funds Inadequate attention to financial disciplines and cash flow control.   

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Vulnerable for slowing down or going under if the original owners are not active or have not trained capable next generations This can be managed if right from the beginning you have planned for successions

Inadequate financial plans & control over Cash Flows (perpetually caught up in this vicious cycle). This can be dangerous Inability to pay competitive wages / salaries to trained professional in working classes Meticulous attention to funds flow & cash flows & follow up on regular basis

Lack of adequate marketing contacts & reach:  

Vulnerable due to complete dependence on single or very few customers This can be managed if right from the beginning you have planned for successions © 2008 PMI Pune-Deccan India Chapter

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Risks faced by the SME units & Suggestions 

Lack of formal training of the Team: Senior Management Team  

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Lack of formalized focus on SMART & Efficient operational procedures / methods: 

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Need for formal systems / Need for learning from others experience & planning for very efficient ways and methods right from the beginning. This means this will have to continue continuous reviews & improvements This can be managed if right from the beginning one has planned for right choice technology & methods even if the initial project costs are higher

Lack of awareness of IPRs and legal issues (IPRs / Patents / Copyrights / Registrations in these units:  

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Vulnerable due to non-availability of trained staff is an important challenge / risk for the SME segment and the risk is real This can be managed if right from the beginning you have planned for such exercises and training programs for technology plus leadership skills as part of the on-going activity

In the era of globalization it is important issue to attend to. One tends to give secondary treatment for this. But one can not neglect these issues for even in SME units This can be managed if right from the beginning you have planned for successions

Need for training of the leadership and Promoters of such units with right managemen thinking / attitudes & practices © 2008 PMI Pune-Deccan India Chapter

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Risks faced by the SME units & Suggestions One can easily appreciate that such situations are very common for many SME units in and around Pune. However this may ably represent issues faced by many such units in India operating in such sector of the Industry.

SMEs are becoming an important segment of our economy and one can no more neglect such needs any more.

How ever the challenge is to decide where do we start and what is the way to promote such thinking for this vital sector.

We all need to change our ways of thinking and think for the long term to protec our own interest for all such units & start soon. SMEs definitely needs special attention from everyone © 2008 PMI Pune-Deccan India Chapter

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How do you insure SME business Performance?

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Marketing is the name of the game!

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To be fair in selection procedures all of you must climb the tree!

HR dilemma?? © 2008 PMI Pune-Deccan India Chapter

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Over enthusiastic attitude of some young players

Some bloke wants to know if we have carried out a thorough risk assessment properly!!

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How do we improve the situation? Journey is not simple • Capacity to Excellence

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Capacity is basic potential as a given

Excellence

Values & Passion

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Capacity is converted to Capability once you are willing to put in action your potential capacity and develop ability

Competence

Action Control & Repeatability

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Capability

Speed & Productivity

Capability is honed into Competence when you do well over & over again in flawless way. You develop a particular skill at reflex level and can repeat the same in an effortless way

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Excellence emerges when you develop passion for your activities and master the art of doing it and living your life with zest and vigor

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At times journey and the process are far more important than the destination

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Organization Development path would mean that we move from Capacity to Excellence

Capacity

Focus & Attention

Journey from Capacity to Excellence is the Path one needs to travel all life for actualizing Goals in Life of an individual as well for an organization

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Can we manage / balance the world for ourselves

• We need to work continuously to ensure that we reach our goals and happiness in our own way

• The task is not so simple and you must make it a serious business for yourself

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Thank you!

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