An integrated approach to investment project management

Any enterprise or company needs to develop a competent investment program. But investment project management is a complex and multifaceted process. 

Avenston Group working effectively in Ukraine for a long time. Our company specializes in investment, engineering, and consulting. We are ready to become a business partner for a foreign and Ukrainian investor. Our company will help you to correctly invest in the industry, agriculture, science-intensive industries. We cooperate with many companies. With us, you can minimize potential financial risks. 

Why should you become our partner?

The costs of the enterprise can be divided into two blocks:

  • operational (OPEX);
  • capital (CAPEX).

The first ones are repeated at regular intervals. Therefore, investment projects of this type can be easily analyzed. The organization of control and planning is carried out in several approaches.

Capital costs are always unique. Any investment project has its specificities. For a competent choice of the necessary methods for managing capital investment projects, a special approach is required.

The increased attention is due to their scale. It is necessary to correctly build and optimize investment costs, carry out step-by-step control, and make the most accurate decisions. All this provides a significant increase in business efficiency.

Classification of investment projects?

Classification of investment projects
Classification of investment projects

The diagram shows one of the possible classifications of investment projects. External (first group) is directed to the purchase of new assets. Internal (second group) is used to maintain, develop existing assets. 

The choice depends on which particular option we are talking about an organization for managing investment projects.

Internal investments are subdivided into investments:

  1. Supported (equipment repair, replacement).
  2. Investment in development (directed to the modernization of existing equipment, increase in production capacity, etc.).
  3. Disinvestment involving the disposal of working capital. 

It is managed investment projects of the possible to first type with detailed information about the actual situation, a comprehensive justification for the need to make specific decisions, and the calculation of risks. It is necessary to calculate the timing of implementation, the amount of investment, alternative options.

Likewise, it is necessary to calculate the effectiveness of the proposal (example: DPP, IRR), analyze the sensitivity to the basic parameters. The material needs to be worked out. The company should make a substantial profit from the project.

If you do not have the appropriate specialists, we offer to outsource. The strategic management of investment projects is transferred to the specialized organization Avenston Group. We will comprehensively analyze the aspects of the payback of the decision made, monitor the economic feasibility, assess the potential pros and cons.

Investment Project Planning Mechanism

To manage investment projects, they need to be planned.

Competent managers do this as part of the preparation of the enterprise development strategy. It needs to be regularly adjusted to reflect the actual state of affairs. The optimal time frame is 5-7 years. 

For this period, the following are estimated:

  • the need for CAPEX (Capital Expense — capital expenditures);
  • types of necessary investments that will allow reaching the planned indicators, occupying a market segment, improving existing technological processes;
  • how quickly the project will pay off.

All information is used in calculating the business development strategy. 

Planning of investment projects
Planning of investment projects

It is necessary to immediately understand how interesting the company is with its existing assets, whether it is profitable to invest in them.

It is important to understand that a properly developed investment project management business plan provides for an assessment of the feasibility of acquiring assets on an ongoing basis. If investments help to increase profits, pay off quickly, they need to be analyzed in depth.

An annual investment program should be prepared. Its elaboration allows you to get a real picture of specific production volumes, estimate costs and expenses.

The obtained calculations allow you to accurately select one of the possible scenarios for the development of the company, to determine the optimal approaches to managing an investment project. 

At the planning stage, it is necessary to adjust the volume of investments for unfinished projects, CAPEX.

Recommended planning algorithm:

  • Collection of applications from all structural divisions of the enterprise planning to make investments.
  • Primary screening of unpromising and ineffective.
  • Analysis of CAPEX selected by specialists with their specification and calculation of expected effects, with partial elimination (the latter must be comprehensively justified).
  • Consideration of the designed program by the investment committee (company management).

Almost always, at the stage of preparation, problems of a different nature arise. Most often, a program needs to be prepared before the budget is approved.

At this stage, it is not clear which projects to choose. In such a situation, analysts are guided by the company’s strategy to determine priorities. But at the time the budget is approved, the market situation may change. Therefore, it will be necessary to reconsider the priorities.

Work on the formation of investment projects is a venture.

Risk management provides for the development of possible ways to prevent them or reduce the negative consequences.

To minimize potential risks, a sensitivity analysis is performed. It allows with a high degree of probability to anticipate a possible change in individual macro parameters and volumes:

  • significant fluctuations in macro parameters (for example, the planning of the exchange rate);
  • the probability of doubling the calculated payback effects;
  • execution by the initiators of the necessary examinations with inadequate quality;
  • incomplete justification of the feasibility of a specific project.

When, in the course of the implementation of a particular project, its configuration or the required amount of investment changes, a requirement for re-approval may arise. In cases where the project goes beyond the payback boundaries, it is also sent for revision. 

Verification of the implementation of investment projects

As a rule, enterprises use several types of basic reports related to investment issues:

  • The report related to maintenance topics. The real/planned timeframe for the completion of the project, a similar amount of investment, and the reasons for the identified deviations are considered.
  • Report on CAPEX (refers to the regular reporting forms). All projects currently being implemented, expenses (to reporting periods) are summarized here. 
  • Actual payback. This report includes information on projects submitted for monitoring by the management company (MC).

A comprehensive analysis of the company’s full investment is carried out, focusing on the volume and number of projects for which deviations in payback periods have been identified. Be sure to comprehensively analyze the reasons for the discrepancy between the actual cash flow and the design values ​​for the full planning horizon (5-7 years).

Reporting on a specific project provides for the analysis and calculation of:

  • forecast of basic characteristics over the entire execution horizon; 
  • factor analysis of the identified deviations of planned receipts (depreciation plus profit), payback time;
  • a plan of proposed corrective actions.

When are projects removed from monitoring?

Each organization has its criteria. One option might involve dividing the available projects into several groups according to the classification given above. These are events that have already occurred. Examples.

1. For projects from the development group, the following conditions can be applied:

  • recoupment of funds at the time of reaching 100% repayment of investment loans (IL) received for the implementation of the project; 
  • the maturity date of the IL has not come, however, the net present value (NPV) at the time of recoupment is quite sufficient for subsequent repayment;
  • rejection of the topic due to the identification of its significant changes. 

2. In support of. All planned costs have been carried out, no other costs have been planned, a comprehensive analysis of the reasons for the identified deviations has been made.

3. Outsourcing:

  • project is at the planned capacity;
  • completed two-year monitoring from the date of handing over the issue to an outside contractor.

Managing the processes of an investment project is a very complex type of activity that requires a significant number of highly qualified specialists on the staff.

For many organizations, it is cheaper to contract a specialized company (for example, the Avenston Group of Companies). We will timely and with proper quality develop the entire range of investment activities of the enterprise, evaluate your projects from the point of view of their economic feasibility, assist in finding Ukrainian or international investors, suppliers of the necessary technologies and equipment.

Our partners will only have to deal with the implementation of the selected investment projects, their operation, and making a profit.