Essence, objectives and rules of investment planning
It is difficult to overestimate the importance of investment in the economy. Perhaps, many have heard of such a term as "investment project". This article is intended to clarify the essence, goals and types of investment projects, as well as to acquaint with the methods of their assessment.
What is an investment project
A document justifying the feasibility of investing in a particular asset is called an investment project. An asset can mean any business system: from a small enterprise to a city or even a state. The main condition is compliance with the investment principle. That is, the money should be invested for the purpose of making a profit, and not as assistance or funding for non-profit projects.
The essence of any investment project is in the economic justification of the need to invest capital in a specific asset. We can say that this is a business plan, only in a broader, one might say, in a global sense. An investment project is drawn up not only to make a decision on starting a business, but also to analyze the prospects for financing scientific work, developing infrastructure or a sector of the regional economy.
Purpose of the investment project
- Make sure that the investment is actually profitable and calculate the payback period. This is especially true when the investment project is drawn up by the investor himself.
- Convince the investor to place funds in the asset. An investor here can be not only a private person, but also a financial institution (structure), a manufacturing enterprise or a government agency.
In addition, an investment project must include a risk assessment. This is extremely important for a policy of “thoughtful” investment and preservation of investment.
Investment project structure
Regardless of the amount of financing and the characteristics of the assets, all investment projects have the following structure:
- A short description reflecting the essence of the project: amount, asset, timing and investment objectives.
- A detailed description that takes into account all the nuances of the project. This is a market analysis, a description of services, production technology, market promotion strategy, structure, staffing, and more.
- A financial and economic feasibility study containing detailed calculations confirming sufficient profitability and an acceptable payback period.
- Conclusion containing a short and succinct conclusion about how expedient it is to invest money in an asset.
The concept of "investment project" has many meanings.
On the one hand, an investment project is understood as a set of documents in which the goal of the planned activity is formulated and the circle (list) of actions aimed at achieving this goal is defined.
On the other hand, these actions (works, services, management decisions), united by a single goal, are associated with the concept of "investment project".
We will operate with the concept of an investment project in both meanings ...
Any investment project is designed to substantiate the economic feasibility of capital investments, their volumes and terms.
This justification should be reflected in the design documentation developed in accordance with special standards and norms.
In this case, practical actions related to the direct implementation of investments are described in the business plan.
Thus, an investment project is a complex set of measures aimed at creating new goods and services or reconstructing or modernizing existing production facilities in order to obtain economic benefits.
This term also covers the resources, funds, investments and results required to achieve the investment goal.
In essence, an investment project is the physical result of investment design.
Factors affecting the investment project
The process of creating any investment project is influenced by a significant number of factors (external and internal), some of which may be critical.
Therefore, at the stage of project development, it is important to determine these factors, carefully analyze them and, taking into account the information received, predict various options for its development.
A business plan for an investment project is a document that represents its merits, or rather, compliance with existing economic and legal norms, profitability, efficiency, resistance to economic instability and qualitative differences from other existing projects. This document should highlight the long-term prospects for investment, namely the possibility of expanding and further developing production.
Why should you draw up a business plan for an investment project?
Given the current conditions of a market economy, none of the enterprises will be able to work profitably without an in-depth development of a business plan. Drawing up and in-depth analysis of business plans makes it possible to see exactly how the business will be managed to ensure its efficiency and profitability, as well as the ability to return investments.
Due to the constant changes taking place in the economic environment in which companies have to operate, it is planned to revise and refine the business plan, which ultimately forces the company to develop a mechanism for involving the management team in this work.
The business plan of the investment project pursues internal and external goals. Its external side is intended to justify the trust of creditors and investors, convincing them of the high potential of the enterprise, its competent employees, as well as convincing them of the need to provide financial and strategic assistance.
Simply put, the lack of a well-designed plan that will be systematically adjusted in accordance with constantly changing economic conditions is a significant drawback that reflects managerial weakness, as a result of which it becomes more difficult to attract financial resources and achieve long-term stability in a competitive environment ...
We can say that the preparation and pre-launch analysis of a business plan for an investment project is, in fact, a CRITICAL POINT and, undoubtedly, the basis of all executive and planning activities of the company. This document is by far the most important source, accumulating strategic information, as well as ways of direct influence of management on the future economic position of the company, and in addition, describing the ways and means of achieving growth in profitability. In general, the investment, operational and financial policy of the company must fully comply with the strategic goals and directions that are set out in the business plan.
Finally, the following can be noted: the business plan of an investment project clearly shows the understanding and knowledge of the company's managers of the business environment, as well as its market position.
Business planning allows the management system to carefully study all its shortcomings, thereby forcing to consider the specific factors and characteristics that affect the company's competitiveness. Therefore, the requirements that are provided for business plans are the conditions for creating an effective management strategy and self-improvement in the whole management system.
The value of business plans can be determined by the quality of the proposals they contain and the completeness of the information. The business plan of an investment project should never reflect the prejudices or exaggerations of its authors. This well-written document is a very useful and highly effective marketing tool. And investors pay special attention to the likelihood of its execution over a certain period of time, which directly reflects the competence of the company's management system.
The business plan, today remains the main document for creditors and investors, and for the management of the company (enterprise), it is the main management tool. Getting its approval and determining its further viability depends on the correct drawing up of the structure of a business plan.
Drawing up a business plan for starting an investment project - basic principles and recommendations
Investment planning is the development of a program of measures or an action plan that will allow an investor to invest with maximum efficiency the available funds in the assets existing in the financial market.
Planning for future investments is one of the most difficult strategic tasks, without which it is impossible to successfully engage in investment activities. This statement works not only at the micro, but also at the macroeconomic level. In other words, any subject of the investment process needs to draw up an investment plan: a private investor, enterprise, municipality, region and state.
When planning, an investor should take into account the current state of the economy, the existing inflation, the specifics of the taxation system, the prospects for the development of financial markets and other significant indicators.
Drawing up an investment plan involves the practical solution of the following tasks:
- determine the need for attracting additional funding sources to the project;
- determine the strategy of interaction with third-party investors;
- assess the profitability of the project and the ability to pay for the attracted capital;
- prepare a financial calculation of the effectiveness of investments, taking into account the return of borrowed money;
- develop a detailed business plan that can be provided for familiarization to potential investors.
High-quality planning allows you to successfully solve all the listed tasks, to raise the missing funds in the shortest possible time and launch an investment project.
In order to make planning for future investments truly effective, an investor should adhere to a set of basic rules.
- Before making specific decisions on investing money, an investor needs to understand the goal setting. In other words, he must formulate a clear, unambiguous goal towards which the investment will be directed. Without this, it is impossible to launch a successful investment project. After all, understanding the goal allows you to choose the best way to implement it.
- Already at the initial stage of investment planning, before the start of the project, the investor should not only imagine the costs of acquiring the selected asset. You should look to the future. Thus, you can accurately predict further expenses that may be needed in the future. Let's take an example. If a real estate object is chosen as an investment asset, then in the future it will be necessary to pay taxes on it annually. If an investor invests money in precious metals or works of art, then he will automatically have expenses associated with their safe storage. For example, a monthly payment for a safety deposit box.
- The profitability of a long-term investment will depend on a huge number of variables. The investor should be aware that past successful investment experience in any area may not bring the desired effect on the next project. In such a situation, it is simply necessary to be able to make high-quality forecasting of investments by analyzing the main trends in economic development.
- The investment schedule is an integral part of any project. That is, the investor must determine in advance the amount of money spent and distribute them over specific periods of investment.
- Risks are an integral part of the investment process. The longer the payback period of the project, the more risky it is. Thus, at the planning stage, it is imperative to take into account the time factor.
Investment design is a technological process of development and creation of a new investment project using special hardware, software and technical documentation.
Understanding what investment design is, allows an investor to look at the investment process from a professional point of view.
This publication is the starting point for the planned series of articles on the basics of investment design.
In particular, we will substantively discuss the key methods of investment design, outline the tasks of investment design, touch upon some features of the financial analysis of investment projects and some other issues related to the essence of investment design.
What is Investment Engineering?
When solving complex socio-economic problems, performing research and development work or industrial production of goods and services, you cannot do without investment design.
Investment design is a special type of activity that uses methods and tools that can significantly increase the degree of data organization, detail (and therefore make more understandable) the structure of an investment project, trace the close relationship of its components, technology and functions , which ultimately has a significant impact on the PERFORMANCE of the project.
The physical result of investment design is the creation and launch of an investment project.
Investment planning methods
At the heart of modern investment design is a SCIENTIFIC approach, which provides for the use of a number of investment design methods:  analysis of initial data,  experimental tests,  production of technical expertise and analytical calculations,  synthesis new data,  forecasting production and sales, and finally  testing the project.