Investment projects - what is it? Purpose and effectiveness of investment projects

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Today, the very term "investment" is very popular among the broad masses of the population. If earlier only we althy and large capitalists were engaged in this, now everything has changed dramatically. Investment projects - what is it? How to implement them to obtain a constant and stable income?

Implementation of the business plan

In international practice, investment projects are plans that are associated with an investment for subsequent profit. In a general sense, any new business idea is somehow related to attracting new capital. That is why, in the broadest sense, investment projects are activities related to the implementation of an enterprise's business plan to achieve the desired result. The implementation process itself in a developed economy is a series of coordinated and interrelated actions: the purchase of equipment and machinery, consulting services for the preparation of cost estimates and design documentation, tendering, supervision of work, training of personnel, purchase of licenses, construction and installation work, etc.similar.

Project lifecycle

The implementation of an investment project is always a long time (with rare exceptions). In economics, they operate with such a concept as the "project cycle". What does it mean? This is the period of time between the initiation of a project and its liquidation. This is the initial concept for solving all financial work and making the right decisions. The states through which investment projects pass are the so-called phases or stages. The life cycle stage is a period of time during which the dynamics of the main financial flows is monotonous, their structure is practically unchanged, and the measures to implement the idea are practically constant. The length of the cycle means that the future value of income and expenses from the point of view of the present moment is different.

The birth of an idea

Investment projects are, first of all, an idea. The initiative for the injection of funds may come from a legal or natural person who wishes to participate in the investment process. This may be a customer who is looking for a particular product, or a manufacturer of any product that needs new financial injections. The initiator may be an investor who wants to invest money and does not know what the probability of success and what return can be obtained in the end.

The importance of a business plan

Financing of investment projects isa process that always begins with the preliminary development of business plans and the necessary calculations. What it is? The business plan of an investment project is a process of enterprise development. This is a standard document that describes in as much detail as possible the concept of a real project for investment, its characteristics are given. The approach to the presentation and direct development of the plan depends on the nature of the investment project. The business plan contains a clear and defined logical structure, unified in advanced economies. Particular attention is paid to the competitiveness of products in terms of quality and price levels. A forecast is given for the life cycle of the entire project and products (or services) in particular.

Financial plan

This is the most important part of the project development phase. It is actually the main criterion for accepting (or not accepting) an investment project, as it answers the question in what form and for how long the return on invested capital will be provided. In the financial plan, the calculation of reasonable income and expenses is carried out, the main performance indicators are reflected. The payback period of all investments in this project is also calculated.

The first stage. Concepts

At the first stage, investment projects are still concepts. The viability of the project is assessed, technical requirements plans are created, sketches are selected, the required amount of financial resources is calculated. For this, all similar objects are selected, for whichand the calculation is carried out. This stage is characterized by an increase in expenses (rather rapidly) and a complete lack of income and cash receipts. Alternative investment projects are also being developed. These are projects that provide for various deviations from the original goals and plans due to a combination of reasons (disasters, problems with implementation or financing, and so on).

Second stage. Required Purchases

The acquisition of working capital and fixed assets begins, so cash costs increase even more. New tools are installed, the necessary patents and licenses are acquired. The effectiveness of an investment project is a parameter that is based on the profitable and adequate sale of fixed assets. The costs also go to staff training, an advertising campaign, legal registration of activities, detailed design, organization of supplies and purchases - that is, everything that is needed to implement the project. There are no cash receipts, as in the first stage.

Third stage. Getting Started

At this stage, investment projects are objects that are already quite ready for full-fledged work. It is at the third stage that they are gradually put into operation. A sharp reduction in spending and an increase in revenues are associated with the receipt of proceeds from the start of sales. At the end of the third stage, financial income reaches its maximum. This stage includes insurance premiums, salary paymentsemployees, purchasing materials and raw materials, receiving sales proceeds, paying taxes, changing required assets.

The fourth stage. Stabilization

By this time, the project is already stable and is characterized by the planned production of goods or services. Profits are stabilizing. In general, the fourth stage should rest on the business plan of the investment project. This is characterized by such parameters as the workload of production capacities, the debugging of the process itself to full automatism, and the achievement of a minimum level of cost of goods or services.

The fifth stage. Outcomes and prospects

By this time, investment projects have already completed their work. There is depreciation of funds, expenses to support production increase, and cash receipts decrease. By and large, in nine cases out of ten, the project is expected to be liquidated. However, another scenario is also possible. Which one?

New life

The purpose of an investment project is primarily to make a profit. But what if the idea itself has not become obsolete, but begins to bring loss? Reinvestment is the way out. But what is it? This is the transfer of financial flows from one asset to a more efficient one. This action binds free investment capital by redirecting it to the production or acquisition of new funds to maintain fixed assets. There are several options for this development of events:

• investments to replace, resulting inexisting objects are replaced with new ones;
• rationalization, modernization of technological processes;
• change of release programs;
• diversification aimed at creating new products and organizing new markets for their sale.

When reinvesting, investors profit from the sale of assets, tax cuts, and inflow of funds through the sale of parts of working capital. The amount of expenses in this case is significantly reduced.

Control and monitoring

Control - an opportunity for the head of the investment project to determine and revise plans and estimates, adjust the implementation of tasks. Control provides:

• constant monitoring (observation of the project implementation process);
• search for deviations from the goal using a number of restrictions and criteria that are fixed in budgets, schedules and so on;
• predicting the situation.

Subjects of control - facts, events, verification of specific actions and decisions. General monitoring is carried out by the customer himself or the management of the enterprise on his behalf. Also, in accordance with the contract, the developer or contractor has the right to conduct inspections.