Today, the term "investment" is very popular among the widest masses of the population. If earlier only wealthy and large capitalists were engaged in this, now everything has changed dramatically. Investment projects - what is this? How to implement them to obtain a steady and stable income?
Implementation of a business plan
In international practice, investment projects are plans that are related to investing 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 budget and design documentation, tendering, work supervision, staff training, the purchase of licenses, construction and installation works, and the like.
Project life cycle
Implementation of an investment project is always a long time (with rare exceptions). In economics they operate with such a concept as a “project cycle”. What does it mean? This is the time interval between the initiation of the 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 go are the so-called phases, or stages. The stage of the life cycle is a period of time during which the dynamics of the main financial flows are monotonous, their structure is almost unchanged, and the activities for the implementation of the idea are almost constant. The length of the cycle means that the future value of income and expenses in terms of the present moment are different.
The birth of an idea
Investment projects are, first of all, an idea. The initiative for the implementation of an infusion of funds may come from a legal entity or an individual who wishes to participate in the investment process. This may be a customer who is looking for a particular product, or a manufacturer of a product that needs new financial injections. The initiator may be an investor who wants to invest money and does not know what probability of success and what kind of return can be obtained in the end.
The importance of a business plan
Financing investment projects is a 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 the concept of a real project for investment as its characteristics. 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 definite logical structure, unified in countries with developed economies. Particular attention is paid to the competitiveness of products in terms of quality and price level. 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 the adoption (or rejection) of an investment project, since it answers the question in what form and for how long the return on invested capital will be ensured. 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.
First stage. Of the concept
At the first stage, investment projects are still concepts. The project viability is evaluated, technical requirements plans are created, sketches are selected, and the required amount of financial resources is calculated. For this, similar objects are selected for which the calculation is carried out. This stage is characterized by an increase in expenses (quite rapid) 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 causes (disaster, problems with implementation or financing, and so on).
Second stage. Necessary acquisitions
The acquisition of working capital and fixed assets begins, so cash costs are growing even more. New tools are being installed, the necessary patents and licenses are being acquired. The effectiveness of an investment project is a parameter that is based on a profitable and adequate sale of fixed assets. Costs are also spent on staff training, an advertising campaign, legal registration of activities, detailed design, organization of supplies and procurement - that is, everything that is needed to implement the project. There are no cash receipts, as in the first stage.
Third stage. Commissioning
At this stage, investment projects are objects that are quite ready for full-fledged work. It is at the third stage that they are phased into operation. A sharp reduction in spending and an increase in revenue are associated with the receipt of revenue from the start of sales. At the end of the third stage, financial income reaches its maximum. This stage includes insurance premiums, payment of salaries to employees, purchase of materials and raw materials, receipt of sales proceeds, payment of taxes, changes in necessary assets.
Fourth stage. Stabilization
By this time, the project is already stable and is characterized by the planned production of goods or services. Profit volume is stabilizing. In general, the fourth stage should rest against the business plan of the investment project. This is characterized by such parameters as congestion in production capacities, smoothly running the process to full automatism, and achieving a minimum level of cost of goods or services.
Fifth stage. Results and Prospects
By this time, investment projects have already worked out their own. Depreciation of funds is observed, costs to support production are increasing, and cash receipts are decreasing. By and large, in nine cases out of ten, the project expects liquidation. However, another scenario is possible. Which one?
New life
The purpose of the investment project is primarily to make a profit. But what if the idea itself has not outlived itself, but begins to make a loss? Reinvestment is the way out. But what is it? This is the movement of financial flows from one asset to more efficient. This action links free investment capital by redirecting it to the manufacture or acquisition of new funds to maintain fixed assets. There are several options for this development of events:
- investments for replacement, as a result of which existing facilities are replaced with new ones;
- rationalization, modernization of technological processes;
- changing release programs;
- diversification aimed at creating new products and organizing new markets for their sales.
When reinvesting, investors receive profits from the sale of assets, tax cuts, cash inflows through the sale of parts of working capital. The amount of expenses in this case is significantly reduced.
Control and monitoring
Control is an opportunity for the head of an investment project to determine and revise plans and estimates, and to adjust the execution of tasks. Control provides:
- continuous monitoring (monitoring the project implementation process);
- the search for deviations from the goal using a number of restrictions and criteria that are fixed in budgets, schedules, and so on;
- forecasting the situation.
Objects 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.