The concept and types of investment projects, methods for their evaluation

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

Investment projects are created and pursue the achievement of certain goals that are associated with generating income. But they are not always successful - many of them are frankly a failure. To minimize the likelihood of negative events, it is necessary to have a high-quality theoretical base. And the concept and types of investment projects will help to start here.

General information

First of all, it should be noted that this is a project. Although in the future its signs can be interpreted in relation to the activities carried out. The following points are used to characterize the project:

1. Time limit.
2. Implementation cost.
3. Implementation algorithm for individual stages and time intervals.
4. Unique result.

But don't fall into the misconception that an investment project is just a set of documents, which is what many people do. After all, its essence is the realization of a certainan innovative idea that has already been embodied in a certain technology or equipment involving a specific amount of investment. The project is carried out by executors in a certain social and natural environment with limited resources for its implementation. That is why it is necessary to clearly distinguish between different types of investment projects.

About essence

So what are they? An investment project, in fact, is an advertisement and a description of an idea, it contains a commercial offer for those who decide to invest in a business, an assessment of efficiency, a business plan for functioning, as well as a guide to the implementation of what was planned. That is, the whole complex of measures that will be taken to achieve the stated goal. For its designation, the concept of "investment project" is used. But it should be remembered that each object of relations has its own goals. So, for example, any investor wants to maximize the profit received. This rule is always valid, even when working with, for example, social objects. For example, increasing profits in the future at production facilities by improving the social conditions provided for workers, improving their comfort and improving the quality of work. From this we can conclude that the species diversity of investment projects is very high.

About classification

Initially, it is necessary to highlight the signs by which we will navigate. These are: the goals pursued, the scopeimplementation, scale and life cycle. Let's take a closer look at this:

1. The overall goal is to get the maximum possible profit. But there are some moments that give it a characteristic color. Their role can be the solution of social, environmental and economic problems. As narrower options - expanding existing production, increasing the number of services provided, or launching a new product line.
2. Sphere of implementation. Depending on where the project is created, it can be industrial, social, scientific and technical, environmental, financial and organizational. A combination of several spheres of implementation is also possible.
3. To assess the scale, both the amount of invested funds and the impact of the project results on the environment can be assessed. In the first case, large, medium and small are distinguished. The former are measured in billions of dollars. Medium projects start at ten million. Anything less than that is small. By impact, they distinguish: local, sectoral, regional and national economic projects.
4. The life cycle is used for characterization. It includes the birth of an idea, the development of all necessary documentation, implementation, a period of effective production and subsequent closure. But considering the types of investment projects, they take into account the period from the start of investments until the facility reaches the required level of work. In total, short-, medium- and long-term projects are distinguished. Their duration is respectively up to 5, from 5 to 15, more than 15 years.

Depending on the positions from which all this is considered, there are different types of activities in the investment project.

About the content

During the life cycle there are constant changes. It doesn't just apply to structure. The entire life cycle is divided into certain stages. They, in turn, can be characterized by the depth of elaboration of existing ideas. This is influenced by the set of different calculation methods and research tools used. What is meant in this case? In other words, a project scenario is drawn up, the goals pursued are displayed, possible results are evaluated, as well as what material and financial resources will be needed for implementation. What is included in the content? First of all, it is necessary to mention the summary of the project, as well as the characteristics of its initiator. Then follows the main idea and directly the essence of what is being proposed. After what has to be de alt with is formed, a market analysis is carried out. After that, attention switches to sales, raw materials, materials, labor. Once all this is assessed, an implementation plan is drawn up. It requires substantiation and reduction of information to one unit. For this purpose, a financial plan for the project is drawn up. All possible risks are assessed. So, briefly on what should be, we walked. But why do these particular components stand out?

On the meaning and importance

So, why exactly the content discussed above? To do this, you can select the followingexplanation:

1. Summary. Used for a brief presentation of the contents of the investment project.
2. Characteristic. Describes the financial position of the project initiator, his experience in the industry and the market, as well as all other participants.
3. Main idea and essence. It is necessary to describe the investment project itself, as well as the mechanisms and principles for implementing the proposed idea. Preferences and advantages over other offers are also considered.
4. Analysis of the market shows what share the manufacturing enterprise can potentially take in it if the proposed project is successfully implemented.
5. Study of the necessary resources, as well as possible sales, allows you to assess the need for them and the right amount to maintain non-stop work.
6. The implementation plan describes the stages of implementation of the investment project and identifies all the organizational activities that must be carried out for its implementation.
7. A financial plan is needed to determine the amount of financial resources that need to be invested, and for how long in order to get a return.
8. Risk assessment considers pessimistic and optimistic options for work and possible problems.

But that's not all.

Let's say a word about the stages

How is the investment project implemented? The following stages are conventionally distinguished:

1. Pre-investment. At this stage, a complete list of works is compiled, which will be reflected in the scenarioinvestment project. This stage selects 1.5% of all funds invested in the stage.
2. Investment. At this stage, a list of works with objects that have decided to become contributors, that is, with investors, is included. The necessary amount of financing, as well as the order and sequence of investments, are discussed. In addition, suppliers of equipment, technologies, the conditions for their transfer with subsequent installation are considered. Also, the staffing, the level of qualification of personnel are determined, contracts are concluded with suppliers of components and raw materials, electricity, water, and thermal resources. It is here that the largest part of the investment is realized. Its part in percentage terms can reach 90%. Why so much? The fact is that an investment project in the first years may not be profitable, so wages and working capital are provided at first as additional investments.
3. Operational. This stage usually lasts for years and decades. It all depends on the investment project and the period of obsolescence or physical depreciation of the main equipment. During this period, all announced goals must be achieved. Up to 10% of investments fall on this stage.
4. Liquidation. It comes after all possibilities have been exhausted, there is a drop in profits, or in general, costs exceed income. In this case, the object must be reconstructed or liquidated. In the first case, again, investments are needed. At this stage, all stages of work, the results achieved are analyzed, existing errors are identified andconclusions to avoid them.

About other classification points

So, what other types of investments could there be? Investment project is still classified:

1. Depending on the purpose. An example is the release of something new, the preservation of the old assortment (but with improved quality), an increase in production volumes, and the solution of various problems of an economic and social nature.
2. Riskiness of the project. There is little choice here. You have to choose only between reliable and risky. But their degree is a separate issue. State projects are highly reliable, while the most risky are those associated with innovation.
3. By relationship, there are independent, alternative and joint.

Let's say a word about efficiency

So we already have something. And how to evaluate it? Especially for this purpose, the types of efficiency of investment projects are considered. How much money the investment will bring depends on the quality of the analysis and evaluation. At the same time, several fundamental points are distinguished:

1. Although the project is considered as a whole, each of its stages should be carefully analyzed.
2. Cash receipts and expenditures must be modeled for valuation.
3. When choosing from several alternative projects, it is necessary to conduct a comparative analysis in order to choose the most optimal one.
4. Timing and inflation should be taken into account. Take, for example, computers. Once upon a time, this sophisticated electronics cost a fortune and occupied buildings. But gradually its price fell, the power grew, and now simple microcontrollers costing several tens of rubles can show better results than computers of the 60s and 70s.

The most effective types of investment project evaluation are:

1. Financial.
2. Economic.

Speaking about the types of evaluation of the effectiveness of investment projects, it should be noted that each of them is created for the pursuit of certain goals that need to be de alt with in order to obtain accurate data about the result. Let's look at them in more detail.

Financial valuation

This approach is based on cash flow analysis. In addition, it is being studied whether the existing financial resources are sufficient to implement the planned on time. All types of cash flows of an investment project must exceed the costs if there is a desire to get a good result. Although their separation, as a rule, is not very significant, although it may require increased attention (as, for example, in the case of loans). You need to be more careful with expenses. So, in this case, the analysis should take into account:

1. Purchase of equipment/raw materials/semi-finished products.
2. Taxes.
3. Operating costs.
4. Major repairs and more.

If it is possible to service all monetary obligations at any stage, then we can talk about the liquidity of investment projects. And if there is a positive balance,so it is generally recognized as beneficial. The only question is how much and how much. Regardless of what types of financing for investment projects are attracted, it must necessarily turn out to be a plus. Otherwise, there will be losses and low efficiency.

Economic valuation

She deals with the expediency of investments from the standpoint of maintaining their purchasing value during the implementation of the idea. As an example, we can cite the following types of efficiency of investment projects:

1. Profitability.
2. Payback period.
3. Simple and internal rate of return.
4. The current cost of the project, taking into account the time parameter.

Additionally, all these indicators are divided into simple and dynamic. The difference of the latter is a more significant indicativeness and use in deep analysis. This situation arose due to the fact that dynamic indicators use the discounting method. The economic evaluation allows you to get acquainted with a large number of characteristics.

How to do business?

In practice, both the financial and the economic approach must be taken into account when assessing. After all, this will allow you to get a more complete picture. It is also necessary to take into account different types of investment project risks that are associated with personnel, public services, partners, and suppliers. Care must be taken to minimize all possible risks. After all, if the project itself is good,but funding suddenly cut off, it will be very sad. And with a high degree of probability it will lead to the fact that the initial investment will be lost. Fortunately, in many cases, you can insure activities. It is not for nothing that there are different types of financing of investment projects. So, if the founders do not have enough money, you can always apply to the bank for a loan. But this should be done only in cases where there is strong confidence in success, supported by data. So all types of investment projects are considered.