Thursday 17 February 2022

The main stages of implementation of investment projects

Any project, even the largest, is usually only an element of the investment program carried out within the framework of the firm's investment policy. The development of this policy involves:

  • formulation of long-term goals of the company's activities; search for new promising areas of application of free capital;
  • development of engineering, technological, marketing and financial forecasts;
  • formulation of goals and sub-goals of investment activities;
  • market research and identification of possible and available projects;
  • economic assessment and selection of options in the conditions of various restrictions (time, resource, having an economic and social nature, etc.);

formation of an investment portfolio; preparation and periodic updating of the capital investment budget; permanent evaluation of existing projects; assessment of the impact of the implementation of completed projects.

In the course of the formation of the company's development strategy, the main directions of its activities, spheres and priority of the application of capital are outlined. At the same time, they proceed from acceptable profitability, sustainability of growth, and the necessary diversification of the business. The question of finding promising areas of application of the captain arises as the chosen business stabilizes and cash appears that the owners consider it possible not to withdraw from the business. Any investment program is based on forecast estimates of a marketing, technical, technological and financial nature, which are used in the development of the investment budget. Over time, a large firm most often forms a portfolio of acceptable projects that can be implemented as sources of financing become available. Moreover, any particular application of capital can usually be performed in various ways, i.e. as a rule, the concept of alternative projects arises, from which the final course of action is chosen using a number of criteria. In a large firm, investment activity, understood as a set of alternating projects, is carried out almost continuously. This necessitates constant ongoing monitoring and evaluation of existing projects for the advisability of their continuation or, conversely, completion. Any completed project is subject to the so-called post-audit, during which the results and consequences obtained are evaluated.

The bold line is net cash flow (NPV). Outflows (costs) are indicated with a minus sign, and incomes (inflows) with a plus sign.

The limited period of time during which the set goals are realized is called the life cycle of the project. The distribution of costs and revenues within the life cycle of a conditional project is shown in Fig. 3.1

Comparison of incoming cash (benefits) and their expenses (costs) allows you to determine the so-called net cash flow. The first stage of the project, as a rule, is characterized by a negative value of net cash flow (cash is invested), then (with an increase in project revenues) its value becomes positive.

The length of the project life cycle over time means that the future value (value) of costs and revenues from the point of view of today (i.e., the moment of making a decision to invest in the project) are different.

Program - a planned set of economic, social, technical, design and research activities aimed at achieving general goals or implementing a certain direction of development; an investment program is a set of unified data on the system of investment projects or investment proposals.

The initiative to develop an investment project can come from any person, legal or physical, wishing to participate in the project as almost any party. It can also be a customer who needs a particular type of product and who is interested in how realistic its production is, how much it will be for him.

It is worth how much better from all points of view the new option than the previously used one, etc. The initiator can be an investor who wants to invest money, but does not know what is the probability of successful implementation of his idea and what return he will receive in case of success. Finally, the initiator of an investment project can also be the manufacturer of a new product or the author of an idea who wants to convince organizations or persons who can become investors to entrust him with money with the help of calculations.

there are a large number of commercial organizations that have sufficient amounts to invest in real projects, however, realizing the instability of today's Russian market, they agree to finance any projects very carefully, remembering that the probability of ruin yesterday of unshakable and solid companies is quite high. The variety of customers for the preparation of investment projects introduces additional difficulties into the calculations themselves, since different interests, different accents that customers belonging to different parties in the project would like to place require a differentiated approach and sometimes their joint participation in the calculation of the project, its discussion and adjustment.

As already mentioned, the length of the project life cycle in time predetermines the different value of future costs and revenues related to different time intervals, i.e. the moment that is a kind of starting point, for example, today (which can be different dates for the beginning of the life cycle of the project, such as the moment of the birth of the project idea or the moment of making a decision to invest in the project, etc.).

So, any investment project from the moment of its inception to the moment of completion goes through a number of certain stages, which we called the life cycle of the project. The division into stages, like any classification, is conditional. However, in view of the fact that the sequential development of any project is inherent in the common stages characteristic of other projects, it became necessary to describe such periods. Let's consider several options (examples) of the project life cycle.

For example, some managers schematically represent the stages of the project life cycle as follows:

  • design;
  • analysis of the problem (goals, requirements, tasks);
  • concept development (feasibility studies, alternative concepts);
  • detailed study (specifications, drawings, detailed plans);
  • project implementation (working documentation, tests, acceptance);
  • use (implementation, maintenance, operation);
  • liquidation (dismantling, disposal, sale, development task).

Bank employees divide the life cycle of the project into larger stages (phases):

  • pre-investment;
  • investment;


Let us consider in more detail the pre-investment phase of the project life cycle, since this phase is crucial for the successful implementation of the entire investment project.

It is customary to distinguish three stages (levels) of the pre-investment phase of the project investment cycle:

  • study of project investment opportunities (opportunity studies));
  • pre-feasibility study);

feasibility study.

The difference between the levels of pre-investment studies is conditional and the depth of study of each level depends on the complexity of the project, time constraints, the requirements of a potential investor and many other factors. The cost of conducting pre-project studies is also different and varies from 0.8% for large projects to 5.0% for projects with small investments.

Large projects are usually understood as projects that are of a strategic nature, are fundamentally new facilities and have a cost of more than $ 2 million. Medium-sized projects cost from 300 thousand to 2 million dollars, small projects - less than 300 thousand dollars. Large projects in Western Europe and the United States account for 20% of the total number of projects implemented by companies, and usually take about 80% of the company's resources. Such projects are usually implemented within 3-4 years and are approved at the level of company management, small and medium-sized projects - at the level of unit management.

The following example is rooted in the practice of project analysis in the World Bank organizations and includes the following successive stages of the traditional project cycle: definition (identification), development (preparation), expertise, financial support, project implementation, operation and final evaluation. Meaningfully listed steps include the following:

Definition - the goals of economic development are formulated, the tasks of the project are determined, a preliminary feasibility study (FS) of the project is prepared, for this purpose, project ideas are developed, its preliminary preliminary study is underway, an analysis of its feasibility is carried out, alternative projects are considered. Upon completion of the work on the stage, the future lender and the borrower draw up a joint report (resume).

Development – study of the technical, economic, institutional, financial aspects of the project in terms of its feasibility. Preparation of a feasibility study. At this stage, the work is carried out either by the borrower or by a special agency.

Expertise – a detailed study of all aspects of the project (its commercial viability, technological progressivity, financial results, environmental consequences, national economic effect, social and cultural acceptability, institutional feasibility). Such an analysis is carried out either by a special agency or jointly by the lender and the borrower. At the same time, all the benefits and costs associated with the project are analyzed, i.e. the technical plan and the degree of its completion, the impact on the natural and social environment, commercial (market) prospects, the economic aspect of the consequences of the project for the state, the financial circumstances of the project as such and its impact on the state of the agency implementing it, etc.

Financial security - search for investors, holding meetings "lender - borrower", developing conditions for financing and lending, approving a loan, signing all documents, after which a loan is issued for the project.

Implementation of the project - procurement and placement of orders, construction, installation of equipment, monitoring, commissioning.

Operation – conducting direct project activities, supervising the progress and managing the project.

The final evaluation is carried out some time after the implementation of the project and serves the purposes of retrospective analysis.

Currently, the World Bank's multi-year investment review has put on the agenda the consideration of a new version of the project cycle, based on a more flexible structure and associated with the use of a phase such as a pilot project, which allows already at this stage to reduce the risk of the project as a whole.

All of the above allows us to once again emphasize the complexity, versatility of the real process of passing from the idea of the project to the stage of summing up the results.

Attention is drawn to the caution with which banks are engaged in investing in real projects. The realities of the domestic economy force project developers to almost always make adjustments during the implementation of the project and evaluate the effectiveness.

The general procedure of the investment activity of the enterprise in relation to a specific project is formalized in the form of the so-called project cycle, which has the following stages:

Wording of the project (sometimes the term "identification" is used). At this stage, the top management of the enterprise analyzes the current state of the enterprise and determines the most priority areas for its further development. The result of this analysis is formed in the form of a certain business idea, which is aimed at solving the most important tasks for the enterprise. Already at this stage it is necessary to have a more or less convincing argument regarding the feasibility of this idea. At this stage, several ideas for the further development of the enterprise may appear. If all of them seem equally useful and feasible, then several investment projects are developed in parallel in order to decide on the most acceptable of them at the final stage of development.

Development (preparation) of the project. After the business idea of the project has passed its first test, it is necessary to develop it until the moment when it will be possible to make a firm decision. This decision can be both positive and negative. At this stage, a gradual refinement and improvement of the project plan in all its dimensions is required - commercial, technical, financial, economic, institutional, etc. The issue of extreme importance at the project development stage is the search and collection of initial information to solve individual project tasks. It is necessary to realize that the success of the project depends on the degree of reliability of the initial information and the ability to correctly interpret the data appearing in the process of project analysis.

Expertise of the project. Prior to the commencement of a project, its expertise is a highly desirable stage of the project life cycle. If the financing of the project is carried out with the help of a significant share of a strategic investor (credit or direct), the investor himself will conduct this examination, for example, with the help of some reputable consulting firm, preferring to spend a certain amount at this stage than to lose most of his money in the process of project implementation. If the company plans to implement an investment project mainly at its own expense, then the examination of the project is also highly desirable to verify the correctness of the main provisions of the project.

Implementation of the project. The implementation stage covers the real development of the business idea until the moment when the project is fully operational. This includes the tracking and analysis of all activities as they are carried out and monitoring by the supervisory authorities of the country and/or the foreign or domestic investor. This stage also includes the main part of the project implementation, the task of which, ultimately, is to check the adequacy of the cash flows generated by the project to cover the initial investment and ensure the desired return on the invested money by investors.

Evaluation of results. Evaluation of the results is carried out both at the end of the project as a whole and in the process of its implementation. The main purpose of this type of activity is to obtain real feedback between the ideas embedded in the project and the degree of their actual implementation. The results of such a comparison create an invaluable experience of the project developers, allowing it to be used in the development and implementation of other projects.

The period of time between the start of the project and its liquidation is usually called the investment cycle (project life cycle).

The development and implementation of a specific investment project is carried out in several stages (phases): pre-investment, investment, operational, liquidation and analytical, each of which has its own goals and objectives:

  • pre-investment - from a preliminary study to the final decision on the adoption of an investment project;
  • investment - including design, conclusion of a contract or contract, a contract for construction work, etc .;
  • operational (production, operational) - the stage of economic activity of the enterprise (object);

liquidation - analytical - when the consequences of the implementation  eliminated.

The pre-investment phase includes several stages:

  • identification of investment opportunities;
  • analysis of alternative project options using special methods and selection of the project;
  • conclusion on the project;

making an investment decision.

Each stage of the investment project should help prevent surprises and possible risks at subsequent stages, help to find the most economical ways to achieve the given results, assess the effectiveness of the individual entrepreneur and develop its business plan.

At the pre-investment phase (the first stage), it is necessary to formulate an investment plan (identify the project). Ideas for the implementation of an investment project appear in connection with unsatisfactory demand for goods and services, the availability of temporarily free funds, the desire to realize entrepreneurial abilities, etc. As a rule, several options for a business idea are considered and options that involve high cost, excessive risk, lack of reliable sources of financing are rejected.

The investment intent is reflected in the Declaration of Intent.

The Declaration contains information about the investor, the location of the facility, the technical and technological characteristics of the investment project, the need for various resources (labor, raw materials, water, land, energy), sources of financing, the impact of the facility on the environment, the sale of finished products.

The next required document is the Investment Justification. This document is developed taking into account the requirements of state bodies and must be examined. The Investment Justifications reflect the general characteristics of the industry and the enterprise, the goals and objectives of the project, the characteristics of objects and structures, the provision of resources, the current state and forecast of the product market, the project management structure and the assessment of the effectiveness of the investment project.

This document serves as the basis for registration, if necessary, of the act of choosing a land plot.

As part of the investment case, the viability of the project is considered. The viability of the project is assessed in terms of cost, implementation period and profitability. The assessment allows you to identify the reliability, payback and effectiveness of the project. The viability of the project means its ability to generate cash flows not only to compensate for the invested funds and risk, but also to make a profit.

As a rule, the evaluation is carried out using methods of analyzing the effectiveness of projects.

When deciding to invest money in a project, the expertise of the project plays an important role. Expertise - evaluation of the project in order to prevent the creation of objects, the use of which violates the interests of the state, the rights of individuals and legal entities or does not meet the established requirements of the standards, as well as to determine the effectiveness of the investments made. Investment projects that are carried out at the expense or with the participation of the budget of various levels, which require state support or guarantees, are subject to state comprehensive examination.

Expert units of ministries and departments conduct an examination of projects on the feasibility of the project, on its compliance with urban planning, sanitary, environmental, social requirements.

The work on the examination is carried out by a group of experts, which prepares a conclusion containing the final conclusions on the feasibility of the project, as well as an assessment of the technical, financial, economic, environmental and social aspects of the project.

The final stage of pre-investment research is the development of a business plan, i.e. a feasibility study (FS). A feasibility study (business plan) is a set of calculation and analytical documents reflecting the initial data on the project, the main technical, technological, estimated, estimated, constructive, environmental solutions, on the basis of which it is possible to determine the effectiveness and social consequences of the project.

The feasibility study is a mandatory document when financing capital investments from the state budget (fully or on an equity basis), centralized funds of ministries and departments, own resources of state-owned enterprises.

The development of feasibility studies is carried out by legal entities and individuals who have received a license to perform the relevant types of design work.

In practice, there is no single, universal model of feasibility studies. But foreign and domestic experience allows us to give an approximate structure of the sections of the feasibility study:

Prerequisites and the main idea of the project.

  • Market analysis and marketing strategy.
  • Availability of resources.
  • The location of the investment object and the environment.
  • Design and technology.
  • Organizational scheme and management of the enterprise.
  • Labour.
  • Implementation of the project.
  • Financial analysis and evaluation of investments.


At this stage of the investment program, we are talking about the search for new opportunities for the application of capital, the modernization of existing production, its expansion, etc.), i.e. the following are carried out:

  • systematization of investment concepts;
  • an overview of possible options for their implementation;
  • selection of the best course of action (i.e. the best project);

development of an action plan for its implementation.

At the second stage (investment), capital investments are made, the optimal ratio in the structure of assets (production capacities, production stocks, cash, etc.) is determined, the schedule and expedient order of commissioning capacities are specified, links are established and contracts are concluded with suppliers of raw materials, materials and semi-finished products are determined, methods of current financing of the activities envisaged by the project are determined, and the selection of personnel, contracts for the supply of products manufactured under the project are concluded. Of course, the key point of this stage is the construction of production facilities in accordance with the approved schedule.

The third stage (operational) is the longest in time. During the operation of the project, the planned results are formed, as well as their assessment is carried out from the position of the feasibility of continuing or terminating the project. The main problems at this stage are traditional and consist in ensuring the rhythm of production, its marketing and financing of current costs. Since it is impossible in advance (i.e. at the pre-investment stage) and sometimes it is not necessary to take into account all the details of the project, if necessary, individual changes can be made to it, i.e. the current regulation of individual aspects of the basic technological process is carried out, additional technological procedures are introduced, their rearrangement is made, aimed at isolating the overall efficiency of the project, etc. The need or expediency of additional ones is not excluded. unforeseen, but uncritical in terms of volume and timing of investments.

The fourth stage (liquidation-analytical) is extremely important and should be mandatorily provided for in investment programs.

At this stage, three basic tasks are solved:

First, the possible negative consequences of a completed or terminated project are eliminated. Mainly, we are talking about environmental consequences, while the basic principle is that at the end of the project, the environment should not be damaged and should be improved as much as possible. Depending on the nature and scope of the project, this task may entail significant financial costs, which, if possible, should be taken into account at the pre-investment stage.

Secondly, working capital is released and production capacities are reoriented. As already noted, a long-term investment program is usually a chain of intersecting and successive projects. Any project requires not only one-time investments, but also working capital, a considerable part of which is released at the end of the project and, accordingly, can be used for ongoing financing of a new or expansion of another, existing project. The same applies to the material and technical base.

Thirdly, the assessment and analysis of the compliance of the set and achieved goals of the completed project, its effectiveness and efficiency, the positive and negative aspects characteristic of all phases of its development are formulated, the degree of reliability and variability of forecasts and reliability of the forecasting methods used is assessed. This task is extremely important for the simple reason that it is in the process of post-audit that the methodology of economic justification of projects, technology and culture of proper administration of investment activities are systematized and crystallized.

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