An investment project is understood as a program of measures that are related to making capital investments, as well as its subsequent reimbursement and mandatory profit. During planning, the stages of the investment project are definitely prescribed, the competent study of which determines its success.
Investment project and its main stages
Before investing money, the investor should carefully study the development plan of the selected project. That is why its creators are carefully approaching the development of each stage of its development. Today, there are 4 stages of the life cycle of an investment project:
- operation of newly created facilities;
- liquidation-analytical (not typical for all projects).
In international practice, usually only the first three stages are distinguished. Each of these phases requires mandatory regulation and control.
Project planning
Before the development of an investment project, many tasks are set, but one global task is to prepare information that will be enough to make an informed investment decision.
For the purpose of modeling, the selected investment project is considered in a time scan in which the research horizon (the selected period that is being analyzed) should be divided into equal intervals. They are called planning intervals.
For any investment activity, administration is introduced, which includes these 4 stages:
- Market research.
- Work planning as well as project development.
- Project implementation.
- Evaluation and analysis of the results that were achieved after the completion of the project.
What work is done during planning?
At this stage, the following procedures are mandatory:
- goals are formed, as well as sub-goals of investment activity;
- market research is being carried out;
- possible projects are identified;
- an economic assessment is being carried out;
- various options are sorted out when modeling various constraints (for example, resources or time, while the constraints can be of either a social or economic nature);
- a full investment portfolio is being formed.
Implementation stages
The stages of the project will certainly include investment, the direct implementation of the project, as well as the elimination of any consequences. Each of these steps involves solving certain problems. So, for example, during execution, production and sales are carried out, as well as costs are calculated and the necessary current funding is provided. As you progress through the stages and stages of the investment project, the idea of ββwork is gradually refined, and new information is added. Thanks to this, we can talk about a kind of intermediate finish at each of these stages. Investors can use the results for further planning the feasibility of investing money. The start of the next depends on the successful completion of each stage.
Pre-investment phase
The implementation of the project depends on the quality of the implementation of the first stage, because here the assessment of the possibility of its implementation. Legal, industrial and marketing aspects are taken into account. As the initial information, information on the macroeconomic environment of the project is used. Be sure to take into account the existing tax conditions available to the technology, as well as the proposed markets for the finished product or service. There may be many such moments; they depend on the type of business chosen.
The result of the work at the first stage should be a ready structured description of the selected project idea, as well as an accurate time schedule in which it will be implemented.
The pre-investment stage of an investment project includes several stages. The first of these is the search for concepts for possible investments.
Initial premises for creating an investment concept
The search for investment concepts by organizations of various profiles can be carried out on the basis of such a classification of initial premises (they are standard for international practice):
- The presence of natural resources (for example, minerals) that are suitable for processing and further use in production. A very wide range of such resources is possible, starting with plants that are suitable for pharmaceutical purposes and ending with oil and gas.
- Existing agricultural production with an analysis of its capabilities and traditions. Thanks to this, it is possible to determine the development potential of this area, as well as the range of projects whose implementation is possible.
- An assessment is made of the likely shifts that may occur in the future under the influence of socio-economic or demographic factors. Also, such an assessment is carried out taking into account the appearance of new products on the market.
- Import (in particular, its structure and volumes), due to which it can be assumed that there may be impetus for the development of projects that can be aimed at introducing into the market domestic products that replace imported ones. By the way, their creation can be supported by the government.
- Analysis of experience, as well as existing development trends characteristic of other industries. Particularly, industries with similar resources and a similar level of socio-economic development are taken into account.
- Addressing needs that already exist or are likely to arise. Both world and domestic economies are taken into account.
- Analysis of information on the planned increase in production for industries that are consumers. As well as accounting for the growing demand for a product or service that is already being produced.
- The potential for diversification of production, taking into account a single base of raw materials.
- A variety of general economic conditions, among which may be the creation of a favorable investment climate by the state.
What does the preliminary preparation of the project include?
Before this stage of the investment project, the task is to develop a business plan. In this document, all aspects of the created commercial organization must be spelled out with an analysis of possible problems that may arise in the future and determination of ways to solve them.
The structure of such a project should be clearly defined. It may include such sections (they analyze possible solutions to problems in these areas):
- A thorough study of the existing market potential and production capacities, which are necessary in order to ensure the planned volume of output of goods, is carried out.
- Analysis of the structure, as well as the size of the available or possible overhead costs.
- The technical foundations of the manufacturing organization are taken into account.
- Possibility of placing new production facilities.
- The amount of resources that are used for production.
- The correct organization of the work process, as well as the remuneration of workers.
- Project financial support. In this case, the necessary investment amounts are taken into account, as well as the probable costs of production. Also in this section, methods of obtaining investment resources are prescribed, as well as the possible achievable profit from such investments.
- Legal forms of existence of the created object. This applies to the legal part.
How is the final preparation of the investment project carried out?
At this stage, a very accurate preparation of documents for the financial and feasibility study of the project is carried out, thanks to which an alternative consideration of possible problems that are associated with many aspects of investment is provided:
At this stage of the investment project, it is extremely important to determine the scope of the project (this may be the number of products planned for release, or indicators in the service sector). The statement of the problem is very important at this stage of the work. All types of work are planned very accurately. Moreover, all works are indicated, without which the implementation of the project will be impossible.
It is here that the effectiveness of investments is evaluated, and the possible cost of capital that can be raised is also determined. As the initial information are used:
- production costs that are currently available;
- capital investment schedule;
- the need for working capital;
Results are most often provided in the form of tables showing investment performance.
After that, the most suitable project financing scheme is selected, as well as an assessment of the effectiveness of the investments made from the point of view of the project owner. It is impossible to make such documentation without information on loan repayment schedules, interest rates, and also on dividend payments.
Final review of the project
Environmental factors are taken into account, as well as the situation inside the company. In case of a negative assessment of these factors, the project may either be postponed, or a failure may be received.
If a positive decision has been made, the investment phase begins.
Investment stage
The investment stage of the project includes the introduction of investments, the total amount of which on average tends to indicators of 75-90% of the volume of investments that was originally planned. This stage is considered the basis for the successful implementation of the project.
Depending on which investment object is being considered, the project may include a diverse set of actions. Time and labor costs can also be different.
Provided that we are talking about an investment portfolio that should be formed on the stock exchange, for an investor to buy it most often it is enough to click a few times with a mouse and fill out the registration form.
Provided that the investment object is the construction of the building, the implementation of the stages of the investment and construction project is a very complex and lengthy process, which includes numerous stages. Here the investor should carry out such manipulations:
- select contractors who will develop all the necessary documentation for the project;
- select the best suppliers of necessary materials and equipment;
- find a construction company that will perform the work.
It should be noted that in practice, very few investors deal with all the issues listed above. Usually the choice is limited to one company, which receives the status of a general contractor. It is such a selected company that is subsequently involved in the organization of work with subcontractors, and it also monitors all stages of the implementation of the investment project.
Stage of operation
Very often, sources call this stage post-investment. Here begins the exploitation of the acquired asset, the first income comes. Often there are situations when a project does not make a profit at first, but this will not be a surprise for experienced investors. In addition, even at the stage of evaluating investment projects , expenses are laid for this stage, up to 10% of the total investment.
The duration of the operation phase in different conditions may be different in each case. In many ways, the operational phase of the investment project depends on the quality of the investments that have been made. If the preliminary calculations and investor expectations were correct, then this stage can last for many decades. If the investments were not justified, then the operational stage can be reduced to several months.
The logical climax of this stage of the investment project is that the investor has reached the programmed goals.
Liquidation phase
Various reasons can cause the beginning of the liquidation phase. Among them may be:
- When the possibilities for further development are exhausted.
- A profitable commercial offer received by the owner of the asset.
- The curtailment of investments may be due to the fact that the project did not live up to expectations.
Even at the stage of developing investment projects, it is assumed that such a stage exists. It is always associated with the analysis of information that was obtained during the implementation of the project. As a result, specific conclusions can be obtained about inaccuracies and errors, because of which the maximum profit was not obtained.
Features of the stages of investment projects
Investment analysis is carried out by many methods, but any of them involves considering the project as an independent object of the economy. Therefore, it is assumed that in the first two stages of the investment project, it should be considered separately from other activities of the enterprise.
The correct choice of financing scheme is also important. And the overall assessment of the project is to ensure that all the necessary information is presented in a form that is enough to make a decision and conclude that the investment is appropriate.