**PREPARATION OF APPENDIX As TO GRANT AGREEMENTS FOR ENTERPRISE
INVESTMENTS**

**Background**

The project description in Appendix A is a key part of the legal
agreement between USADF and its grantees. Appendix A sets out the mutual
understanding between the parties on project objectives and performance.
As such, the Appendix A should clearly articulate the project's
objectives (goal, purpose, outputs, and activities) and the logical
relationship between them, and establish measurable targets for the
purpose, output, and activities. Appendix As that do not meet these
standards create ambiguity that may become the source of disputes
between USADF and the grantee.

One result of USADF's increased focus on funding enterprise activities
is that in most cases, the goal and purpose statements of most projects
are essentially the same in nature. For example:

-   the [goal]{.underline} of an enterprise expansion investment (EEI)
    or social investment (SI) will usually focus on improving standards
    of living for the poor;

-   the [goal]{.underline} of an enterprise development investment (EDI)
    will generally focus on increasing income and jobs for the poor;

-   the [purpose]{.underline} of an EEI or (SI) will generally be to
    increase the incomes of the client and its employees or members --
    and sometimes external actors such as out growers; and

-   the [purpose]{.underline} of an EDI is to prepare the grantee for
    expansion.

Conversely, the outputs and activities of a project will almost always
be unique to each project -- since they emerge from a specific set of
facts and circumstances. Thus, determining outputs and activities will
require a case-by- case analysis.

Common weaknesses in analyzing outputs and activities include: (1)
defining the symptom of a problem as the root cause (constraint) of the
problem and thus selecting a less than optimal set of activities to
overcome the constraint; (2) identifying a constraint, but failing to
include activities that address the constraint; (3) confusing activities
with tasks or budget line items; and (4) presenting outputs without
measurable targets. The definitions and examples in the matrix below are
suggested as diagnostic tools for drawing out the interrelationships
between problems to be addressed and the outputs and activities in
projects.

**Definitions**

The following definitions are useful in presenting the analysis
underlying outputs and activities.

*Symptom* -- a circumstance a business finds itself in which indicates a
problems exists and needs to be corrected. The symptom is not the root
cause of the problem; it is the consequence of the problem. The symptom
should appear in the background section of the Appendix A.

*Constraint* -- the root cause of the symptom which must be eliminated.
Once the constraint is removed, the symptom should disappear. Like the
symptom, the constraint should be discussed in the background section of
the Appendix A.

*Activity* -- the action or cluster of actions that must be taken to
remove the constraint. The description of activities should focus on (1)
*what* must be done, (2) *who* will do it, (3) *how* it should be done;
and (4) if timing is critical, *when* it should be done. Some actions
are tasks that do not rise to the level of activities. Generally, a task
will not result in the elimination of a constraint, although the task
may be critical to the accomplishment of the activity. The following
examples demonstrate the distinction between activities and tasks.

  ----------------------------------- -----------------------------------
  Activity                            Task

  "By the sixth month of the project, "Hire a consultant."
  a consultant will complete a        
  marketing study, which the          
  company's executive managers will   
  draw on to develop a comprehensive  
  marketing strategy by the end of    
  the project."                       

  "By the sixth month of the project, "Purchase a computerized payroll
  the accountant, with the assistance system".
  of a consultant, will changeover    
  the manual payroll system to a      
  computerized one".                  
  ----------------------------------- -----------------------------------

*Output* -- the outcome of the activity. It describes the turnaround of
the symptom and should have measurable indicators or targets.

**Constraint-Activity-Output Matrix**

This tool provides [examples]{.underline} that highlight the
interrelationships between symptoms, constraints, activities, and
outputs by major output category. It is not a form for field work. The
examples are drawn from projects presented for approval in Fiscal Year
2006, most of which were EDIs.

**Output: Improved Management and Operational Capacity**

+-------------+----------------+--------------------+-----------------+
| Symptom     | Constraint     | Activity           | Output          |
|             |                |                    | Indicator       |
+-------------+----------------+--------------------+-----------------+
|             |                |                    |                 |
+-------------+----------------+--------------------+-----------------+
| Employees   | (a) Payroll    | The accountant     | Employees paid  |
| are not     |     done by    | will implement a   | the 1^st^ and   |
| paid in     |     hand       | computerized       | 3^rd^ Tuesday   |
| timely      |                | payroll by the     | of every month. |
| manner.     | \(b\) Payroll  | sixth month of the |                 |
|             | done by CEO's  | project.           |                 |
|             | assistant      |                    |                 |
+-------------+----------------+--------------------+-----------------+
| Company is  | \(a\) Lack of  | By the 12^th^      | \(a\) Inputs    |
| unable to   | working        | project month the  | purchased       |
| buy enough  | capital        | management team    | equals inputs   |
| inputs.     |                | will have          | needed          |
|             | \(b\) Accounts | implemented a      |                 |
|             | receivable too | revolving credit   | \(b\) accounts  |
|             | high           | facility and a     | receivable      |
|             |                | payment collection | reduced from    |
|             |                | policy.            | 50% to 10% of   |
|             |                |                    | sales by the    |
|             |                |                    | 3^rd^ year.     |
+-------------+----------------+--------------------+-----------------+
| Manager is  | \(a\) One      | By the 6^th^ month | \(a\) Founder   |
| unable to   | manager (often | of the project:    | spends 70% of   |
| guide       | the founder)   | (a) restructure    | her time on     |
| company's   | doing too many | and expand         | business        |
| d           | tasks          | management team    | development (or |
| evelopment. |                | based on the       | production      |
|             | \(b\)          | organizational     | management,     |
|             | Management     | analysis of an     | etc.).          |
|             | lacks required | expert; (b) train  |                 |
|             | skills         | management team on | \(b\)           |
|             |                | operations,        | Management      |
|             | \(b\)          | management         |                 |
|             | Employees'     | techniques, etc.;  | team works      |
|             | roles are      | and (c) recruit    | together with   |
|             | confused       | qualified board    | employees in    |
|             |                | members and        | their           |
|             |                | provide them board | respective      |
|             |                | training.          | roles.          |
|             |                |                    |                 |
|             |                |                    | \(c\) Board     |
|             |                |                    | holds regular   |
|             |                |                    | meetings where  |
|             |                |                    | management      |
|             |                |                    | decisions are   |
|             |                |                    | reviewed.       |
+-------------+----------------+--------------------+-----------------+

**Output: Improved** Financial Controls

+-------------+----------------+--------------------+-----------------+
| Symptom     | Constraint     | Activity           | Output          |
|             |                |                    | Indicator       |
+-------------+----------------+--------------------+-----------------+
|             |                |                    |                 |
+-------------+----------------+--------------------+-----------------+
| Company is  | \(a\) No       | By project month   | \(a\) Regular   |
| unaware of  | regular        | 6, a qualified     | monthly and     |
| its         | financial      | staff accountant   | annual          |
| financial   | reports;       | will implement a   | financial       |
| position    |                | computer based     | reports         |
|             | \(b\)          | financial          | produced        |
|             | Unqualified    | management system  | beginning the   |
|             | employee       | and train          | 3^rd^ month of  |
|             | acting as      | appropriate staff  | the project.    |
|             | accountant     | in its use.        |                 |
|             |                |                    | \(b\) Error     |
|             |                |                    | rate in reports |
|             |                |                    | reduced by 50%  |
|             |                |                    | during the      |
|             |                |                    | first year.     |
+-------------+----------------+--------------------+-----------------+
| Manager or  | Manager has    | \(a\) Restructure  | \(a\)           |
| Founder     | inadequate     | roles so that a    | Management      |
| operates    | financial and  | qualified account  | decisions are   |
| too         | management     | manages the        | recorded and    |
| in          |                | company's          | reviewed by     |
| dependently | Skills.        | finances.          | board           |
| and         |                |                    |                 |
| non-tr      |                | \(b\) Implement    | (b)Accounting   |
| ansparently |                | adequate internal  | records are     |
|             |                | controls.          | maintained and  |
|             |                |                    | audited         |
|             |                | ( c) Attain annual |                 |
|             |                | independent audits |                 |
|             |                |                    |                 |
|             |                | \(d\) Add          |                 |
|             |                | qualified board    |                 |
|             |                | members and train  |                 |
|             |                | them.              |                 |
+-------------+----------------+--------------------+-----------------+

**Output: Improved Production Capacity**

+-------------+----------------+--------------------+-----------------+
| Symptom     | Constraint     | Activity           | Output          |
|             |                |                    | Indicator       |
+-------------+----------------+--------------------+-----------------+
|             |                |                    |                 |
+-------------+----------------+--------------------+-----------------+
| Low yields  | \(a\) Old      | \(a\) Install      | Yields increase |
|             | equipment      | improved pumps and | from 2 tons to  |
|             | breaks down    | piping             | 4 tons per      |
|             | frequently     |                    | hectare.        |
|             |                | \(b\) Recruit a    |                 |
|             | \(b\) Poor     | consultant to      |                 |
|             | production     | analyze the        |                 |
|             | methods        | cultivation        |                 |
|             |                | process and        |                 |
|             | ( c)           | recommend a water  |                 |
|             | Insufficient   | use plan;          |                 |
|             | water at       |                    |                 |
|             | source         | \(c\) Implement an |                 |
|             |                | irrigation plan    |                 |
|             |                | based on the       |                 |
|             |                | consultant's       |                 |
|             |                | analysis of the    |                 |
|             |                | cultivation        |                 |
|             |                | process.           |                 |
+-------------+----------------+--------------------+-----------------+
| \(a\) Low   | \(a\) Input    | \(a\) Construct    | \(a\)           |
| levels of   | storage,       | additional storage | Production (or  |
| production  | processing,    | facility or        | sales) increase |
|             | and packaging  | processing         | from x to y in  |
| \(b\)       | in same        | facility.          | years 1-5.      |
| Unfulfilled | location       |                    |                 |
| orders      |                | \(b\) Convert      | \(b\) Accidents |
|             | \(b\)          | unused warehouse   | per quarter     |
| \(c\) High  | Production     | into processing    | decrease from   |
| rate of     | volume too     | center.            | 10 to 1 by the  |
| accidents   | great for      |                    | end of year 1.  |
|             | facility       | \(c\) Develop and  |                 |
|             |                | implement safety   | (c)Unfulfilled  |
|             | ( c)           | procedures.        | orders decrease |
|             | Production     |                    | from 20 to 0 by |
|             | space too      |                    | the end of the  |
|             | cramped        |                    | project.        |
+-------------+----------------+--------------------+-----------------+
|             |                |                    |                 |
+-------------+----------------+--------------------+-----------------+
| Food spoils | \(a\) Lack of  | \(a\) Acquire and  | Food spoiled    |
| in          | refrigeration  | use a refrigerated | during          |
| warehouse   |                | room for storage   | processing      |
|             | \(b\) Slow     |                    | reduced from    |
|             | processing     | \(b\) Analyze      | 50% to 1% by    |
|             |                | process            | the end of the  |
|             |                | efficiency, with   | project.        |
|             |                | the assistance of  |                 |
|             |                | a consultant       |                 |
|             |                |                    |                 |
|             |                | \(b\) Train        |                 |
|             |                | production foreman |                 |
|             |                | in food storage    |                 |
+-------------+----------------+--------------------+-----------------+
| High number | Time between   | \(a\) With the     | Average time    |
| of customer | packaging and  | assistance of a    | between         |
| complaints  | delivery is    | consultant,        | finished        |
| regarding   | too long       | develop and        | packaging and   |
| delivery    |                | implement a        | reaching        |
|             |                | distribution plan  | customer        |
|             |                | which includes     | reduced from 2  |
|             |                | alternative routes | months to 2     |
|             |                | and expanded fleet | weeks by the    |
|             |                | of vehicles.       | end of the      |
|             |                |                    | project.        |
|             |                | \(b\) Train the    |                 |
|             |                | production manager |                 |
|             |                | on delivery        |                 |
|             |                | processes.         |                 |
+-------------+----------------+--------------------+-----------------+
| Inadequate  | \(a\) Number   | \(a\) Train        | Amount of       |
| volume of   | of producers   | additional         | production      |
| product     | too small      | farmers,           | increases from  |
|             |                | beekeepers, etc.   | x to y in years |
|             | \(b\)          |                    | 1-5.            |
|             | Insufficient   | \(a\) Manage       |                 |
|             | amount of or   | revolving fund to  |                 |
|             | outdated       | provide producer   |                 |
|             | equipment      | inputs and         |                 |
|             |                | equipment          |                 |
|             | \(c\) Poor     |                    |                 |
|             | production     | \(c\) Train        |                 |
|             | methods        | producers on       |                 |
|             |                | improved           |                 |
|             |                | methodology.       |                 |
+-------------+----------------+--------------------+-----------------+

**Output: Improved Sales and Marketing Capacity**

+-------------+----------------+--------------------+-----------------+
| Symptom     | Constraint     | Activity           | Output          |
|             |                |                    | Indicator       |
+-------------+----------------+--------------------+-----------------+
|             |                |                    |                 |
+-------------+----------------+--------------------+-----------------+
| \(a\)       | Lack of        | \(a\) A consultant | \(a\) Sales     |
| Declining   | product        | will analyze       | increase from x |
| sales       | diversity      | product line and   | to y in years   |
|             |                | identify           | 1-5.            |
| \(b\) Low   |                | opportunities for  |                 |
| or          |                | diversification.   | \(b\) Market    |
| declining   |                |                    | share increases |
| market      |                | \(b\) A consultant | from x to y by  |
| share       |                | will conduct       | the end of the  |
|             |                | market research    | project.        |
|             |                | and develop a      |                 |
|             |                | marketing plan.    |                 |
|             |                |                    |                 |
|             |                | \(c\) Manufacture  |                 |
|             |                | and market product |                 |
|             |                | line based on new  |                 |
|             |                | designs.           |                 |
+-------------+----------------+--------------------+-----------------+
| Unable to   | Product not    | \(a\) A consultant | \(a\) Products  |
| access      | compliant with | will develop a     | obtain EUREPGAP |
| European    | EUREPGAP       | compliance         | certification   |
| markets     | standards      | strategy.          | and access Euro |
|             |                |                    | market          |
|             |                | \(b\) The project  |                 |
|             |                | team will develop  | \(b\) Products  |
|             |                | and deliver        | ready for       |
|             |                | training for the   | EUREPGAP        |
|             |                | out growers.       | certification   |
|             |                |                    | by project year |
|             |                |                    | 2.              |
+-------------+----------------+--------------------+-----------------+

12/14/06