Plan
CHAPTER I THE ESSENCE AND TYPES OF INVESTMENT PROJECTS
1.1 Investment projects. Key aspects of analysis and assessment
1.2 Requirements for the architecture of the model for the appraisal of investment projects’ economic efficiency
1.3 Model recommended for evaluating the economic efficiency of investment projects
1.4 Management system informational support the of enterprise investment projects
CHAPTER I THE ESSENCE AND TYPES OF INVESTMENT PROJECTS
1.1 Investment projects. Key aspects of analysis and assessment
The process of adopting investment decisions consists of many phases and is implemented through investment projects. A duly prepared investment project is a tool for all the participants and stakeholders of a business idea, by means of which objectives are defined and measures to achieve the objectives are described. The overall efficiency is assessed by specific economic methods, on the basis of which a proposed project is accepted or rejected. Thus, the quality and proper management of the process of preparing and implementing an investment project is of utmost significance for ensuring successful business development and a constant growth of investments in the national economy.
A project is a sequence of interrelated events which take place in a certain period and are designed for achieving a unique and clearly defined result. A project can also be described as a unique study having a clearly defined objective, limited resources for achieving this objective and set start and end dates, and comprising several interrelated activities or as a temporary activity the purpose of which is to create a unique product or service (PMBOK Guide, 2004). Three main distinctive characteristics of a project can be identified: 1) uniqueness of activity (a combination of the field of activity, means, tasks and other factors making a project unique); 2) limited resources (time, personnel, money, etc.); and 3) defined objective (a specific measurable result being sought) (Lessel, 2007).
An investment project can be analysed in two ways. In the narrow sense, an investment project is a set of documents in which the objectives of an investment project are defined, its results are analysed, its efficiency is appraised, and a detailed implementation plan is described (Turner, 1999; Brigham, Ehrhardt 2002; Ковалев, 2000). The Republic of Lithuania Law on Investments provides a similar definition of an investment project. The law states that an investment project is a document that substantiates the purposes of investment financially, technically and socially, determines return on investments (in case of commercial projects) and other performance indicators, and identifies funds and financing sources for the implementation of the project (Republic of Lithuania Law on Investments No. VIII-1312 of 7 July 1999). In the broad sense, an investment project can be defined as a plan of actions aimed at attaining the objectives of a project (Helfert, 2001). This description matches the aforesaid definitions of a project best, and in this paper the term “investment project” is used in the broad sense.
Since an investment project is a unique set of different actions and means, it should be divided into individual objects of management (Теплова, 2008). Project management requirements (including those applicable to investment projects) are defined in the standards published by the International Organization for Standardization (ISO). Thus, ISO10006 „Guidelines for Quality Management in Projects“ (the standard adopted in Lithuania LST ISO10006:2008 “Quality Management Systems. Guidelines for Quality Management in Projects“ is equivalent to ISO10006:2003) contains the key requirements for all phases of project preparation and implementation. Project management processes and product quality assurance require a structured and consistent approach, ensuring that the needs of consumers and other stakeholders are understood and met. The standards do not specify which processes are necessary for project management; however, guidelines for the required components of the potential processes are provided.
In practice, investment projects can be evaluated from very different standpoints, and this process is usually called project analysis or expert examination (Бланк, 2006; Lessel, 2007). A project efficiency appraisal itself can sometimes become an object of analysis or expert examination, even though such appraisal is made after completing the examination of other aspects. The types of evaluation can differ significantly:
- an analysis of an investment project’s efficiency consists of an analysis of data and design documentation; any other available information is adopted as it is, assuming that its reliability and accuracy are sufficient for the analysis;
- an expert examination of a project has a different task – to determine whether the available information is reliable, accurate and complete (Виленский et al., 2004).
It is proposed that an analysis of an investment project’s efficiency should be made in three stages: 1) appraisal of the efficiency of a conventional static project; 2) risk and uncertainty assessment; and 3) preparation of a feasibility study for the project. The authors have identified three factors that determine the complexity and content of the analysis: uncertainty, significance of the project for a company, and the amount of information required for the analysis.
As we see, in addition to a certain consistency of appraisal, the scope of analysis is defined. For projects with a low significance and uncertainty, conventional methods of efficiency appraisal are sufficient and, vice versa, projects of particular significance, characterised by a high degree of uncertainty, require an
