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Investment Projects, image, image - Coggle Diagram
Investment Projects
Other/Miscellaneous
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Business Perspective
According to the amplitude of the concept:
- An investment is any outflow of economic benefits for acquisition of durable assets/production instruments
- Any operation consisting in the transformation of money to an element used by an organisation for a number of years
According to the purpose:
- Replacement (low uncertainty)
- Modernisation (increased complexity and uncertainty)
- Expansion (greater complexity and uncertainty)
- Strategic (M&A, R&D)
Financial Profile:
- Single outflow and single inflow (financial instruments, wine production etc.)
- Various outflows and single inflow (building construction, forestry etc.)
- Single outflow and continuous inflows (most common)
Planning Stage Phases
Identification of investment ideas:
- Purpose: defining objectives that project seeks to meet
- Contents: preliminary estimation of market size, investment requirements, technology, regulatory framework, revenues and cost
- Product: there is no need to produce a formal document
Pre-feasibility Study:
- Purpose: compare different alternatives to find best to go through with
- Contents: estimation of market size, (aforementioned factors), profitability and indicators used to decide on different options
- Product: analysis of each option, methodology applied, sources of information
Feasibility Study:
- Purpose: consideration of a range of variables to allow effective decision making
- Contents: the same as pre-feasibility with greater detail
- Product: document with sufficient and explanations so as to be considered by third parties
Contents of an investment project:
- Executive summary
- Commercial justification
- Technical justification
- Environmental impact
- Organisational aspects
- Economic justification
- Financial justification
- Evaluation
Commercial Justification:
- Demand analysis
- Supply analysis
- Price estimation
- Sales forecast
- Distribution channels
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Organisational aspects:
- Regulatory framework
- Legal structure
- Implementation structure
- Organisational structure
- Management and governance
Economic Justification:
- Investment quantification
- Revenues
- Costs
- Forecasted profit and loss and balance sheet
Financial Justification:
- Cash-flows
- Financing needs
- Optimal financial structure
- Financial ratios
- Risk evaluation
Technical Justification
Optimal size definition:
- Refers to its installed capacity, and is measured in production units per year
- Considered optimal when it operates at the minimum total costs or highest profitability
- There is a direct way to define size, but alternative indirect ways to define it also exist - E.g. investment size and employees
Analysis:
- Objective is to determine which are the factors that affect size requirements for a certain project
- The selected size should enable the project to face not only short-term demand, but most importantly changing the requirements associated with long-term demand
Raw materials and supplies availability:
- Important to consider not only available resources at the same time the analysis is performed, but also those expected in the future
- The farther away the input sources are located, the higher the provisioning costs will be
- Resulting in diseconomies of scale
- As output increases, cost per unit will also increase
Market geographic distribution
- May lead to selecting different production capacities, depending on how many production units will be installed (in different sizes/places/shifts)
- Economies of scale will favour production units of greater size with greater market coverage
- Oppositely, this will increase distribution costs, with a negative impact on economies of scale
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