What is the Investment Project ?: What is it, Funding Sources, Stages, Types and MORE

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Making the decision to invest is not easy, but by doing it well, you can obtain multiple benefits. Therefore, we explain what a Investment project and how it can help you take the best paths for your company or business.

In this article we will detail everything related to the subject. What are its stages, how is it executed, what are its types and much more.

Read on to learn how to invest!

What is an Investment?

Investment is an economic term that refers to the act of postponing some immediate benefit, in order to obtain a greater one from the good invested. It can also be understood as a specific amount of money or certain goods that are made available to third parties to increase profits within that business project.

In other words, when talking about investment, we are talking about an activity in which resources are offered with the aim of obtaining a better benefit in the short, medium or long term.

Within the economic sphere, the resources are often known as the “associated costs”. The chief of these types are land, labor, time, and capital. Therefore, any benefit generated by the use of any of these four is considered as the result of an investment.

However, it is important to note that an investment also involves multiple risks that must be taken into account. This, since although it can be a successful process, things could happen outside the expected time or, on the contrary, not achieve the intended benefit.

What is the Investment Project?

Now a Investment project It is defined as a procedure in which resources are needed for its execution and which in turn are financially evaluated to know its economic feasibility, compared to the technical, environmental, and social possibility, among others.

Also, a Investment project it needs an injection of resources to be able to develop correctly. For this reason, before starting it, you have to evaluate it in detail and propose three scenarios: do it, don’t do it, or postpone it.

It is a difficult decision but one that can be loaded with a high positive impact, since it is a detailed plan of activities that are destined to execute a future economic action.

For its part, on the legal, it must be stated that it is a common type of document within the administrative procedures of companies, which specifically seeks to increase the return on their capital.

In this line, a Investment project try to find the performance of your financial resources and thus point your profitability. To achieve this, planning is essential, since this is what allows organizations to maximize or protect their resources, through various strategies.

Since they involve the mobilization of resources, investment projects usually undergo evaluation processes that determine their suitability: its profitability, its risk margin and other possible aspects, such as the environmental and legal and administrative aspects. Thus, the evaluation of projects can be done using very different tools and from very different points of view.

Financing Sources

As its name indicates, the Investment project It requires strong financing to achieve the maximum profitability opportunity. The reason? They focus on resources until they improve enough to achieve a more competitive institution.

Knowing this, we will name the most common sources of financing:

  • The banks: If the company is current and demonstrates a positive profitability record, it is very likely that the Bank entities can approve credits, both for small and large companies. In this way, it is possible to obtain financing within the search for growth, provided that good interest rates are offered in terms of more than one year.
  • Investors: A partner or an outsider will always be a good fit, at least financially. They actively participate in the economic market and most of the time they decide to invest because they see in the company a possibility to multiply their resources.
  • Owners: in this case, the business owner is in charge of financing the investment project. Likewise, it will have the intention of increasing or expanding its assets at a higher level than it is.

Investment Project Options

As mentioned at the beginning of the article, an investment project can have three possible scenarios:

  • Make the project: but in order to develop it, in principle, economic and market feasibility must have been found. Here it should already be very clear that the project is viable and profitable, so planned deadlines are established.
  • Don’t do it: This decision arises after evaluating the areas described but observing that there are great limitations and infeasibility for the project. At this point, the measure is taken because it is not considered financially profitable, it does not comply with any legal regulations or its consequences could generate negative impacts on the environment or on the company’s public.
  • Postpone it: finally, in this scenario it is detected that the project has good conditions to be carried out, but not at that moment. It is for this circumstance that due to contingency issues, it is decided to postpone at least for a time.

Whatever the scenario your investment project has, it is essential to analyze it thoroughly. Well, this is what will make you know the risks of the plan beforehand and make the best decision.

Implementing a project without first evaluating it can trigger a host of significant resource losses. Even, in extreme cases, it could result in bankruptcy due to indebtedness or financial incapacity of the company or institution.

Stages of the Investment Project

In general terms, an investment project crosses the following four stages:

Pre-feasibility

At this stage, the investment project is formulated and determined. Likewise, the general objectives and also the specific ones are set, at the same time that all the data is collected to proceed with the prior documentation.

Design

In the second step, it is time to develop a consistent and meticulous design to carry it out within the investment project. It could be translated into a second planning phase, but at a deeper level where the concrete plan will be drawn up, specifying each of the activities involved.

When the design is completed, more controls and evaluations usually appear that will guarantee the success of the preset.

Execution and commissioning

Here, the team in charge develops and carries out the project. The phase can be long or short and can involve feedback mechanisms to obtain various information that will be useful later.

Evaluation

Finally, with the project completed or not, an evaluation of a control way is made to proceed with the closure. Here, the information collected is used to compare with the results obtained and with the goals initially established.

This will give an important indicator to seek to answer the following questions:

  • Were the determined purposes achieved?
  • How can the project design be improved for other practices?

Types of Investment Projects

There are several types of investment projects, but these vary depending on the sectors in which they are located. In this way, we have the ones mentioned below:

By activity sector

Within a macroeconomic vision, the projects can be divided according to the traditional sectoral aggregation into: Agricultural, industrial, commercial and service projects.

By nature of the investor

This type is underlying for all investment projects. Here are the public projects, which have resources from governments or public entities and private projects, which have contributions from specific individuals or private companies.

By productive activity

  • Directly productive projects: where the activities developed directly benefit. That is, the products, goods and services generated can be commercialized in the market immediately.
  • The indirectly productive: These do not contribute directly, but are formed by complementary or secondary activities.
  • Social projects: These are not linked to productive relationships, but are in charge of guaranteeing the functioning of activities within social sectors.

For the investment objective

  • Investment by substitution: This occurs when an investment is made where old or used equipment is replaced by new ones with the same technical characteristics.
  • By modernization or rationalization: This is similar to the previous investment, only that the equipment is replaced by new ones with different technical characteristics to increase production. In other words, produce more but at a lower cost.
  • By expansion: This means using a process that allows the institution to increase its production capacity, allowing it to meet the increased demand.
  • Transformation or innovation: This type of investment project allows the company to generate new products and innovate with other consumer preferences.
  • Strategic or with technological potential: Finally, this type of investment provides a strategic advantage to the organization since it allows turning towards a dynamic perspective.

Relationships between investments

This classification includes the terms of project evaluation. In this way, they are divided like this:

  • Independent projects: which, as the name implies, are not related in any financial, commercial or other way.
  • The dependents: Inverse to independent projects, these are subject to certain aspects.
  • The reciprocally exclusive: Although they are dependent projects, the approval of one generates the rejection of the other.
  • The complementary ones: To culminate with this classification, this type of dependent projects is exposed which, as its name implies, by implementing one, the other is activated or started simultaneously.

Thank you for reading!

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