Introduction

The life cycle of the investment project

All activities for the development and implementation of the investment project is located in
the interdependence in time and space.

The period during which prepared and implemented the investment intentions of the investor,
called the life cycle of the project (or project cycle).

It is divided into several typical steps. A universal approach to such a separation of the process
of implementation of the investment project does not exist, since their composition, duration,
priority and scope of works depends on the combination of external and internal conditions of
the project. Dividing the investment project into separate stages is one of the important
components of the investment analyst since it provides identification of "control points" in the
schedule of preparation and implementation of the project, during the passage of which possible
directions of further project development, obtained certain result, there are significant changes
in the conditions of project implementation that significantly affect the expected outcome,
consequently there is a need to adjust the pre-defined parameters of investments and
assessments of the effectiveness of this process.

Thus, the approach of the separation stage provides the possibility of optimizing the total costs
of preparation and implementation of the investment project at the expense of timely filtering
of different design options.

Unsound projects are rejected in the early stages of the project cycle, which avoids wastage
through analysis and evaluation.

Note that at each stage of the investment analysis is increasing the cost of its implementation,
in particular, it is estimated that the average cost of finalizing and evaluating the project can
achieve for smaller projects of 1-3%, and for large - 0,2-1% of the total investment, while the
costs of forming the investment ideas are at an average of 0.2-0.25%, and study of investment
opportunities - 0,25-1,5%.
In international practice it is accepted to allocate four basic phases of the project cycle:

- pre-investment (project development document);

- investment (forming the assets of the project "turnkey");

- operational (start-up and commercial operation of the assets and the regular receipt of current
profit, return on investment);

- the liquidation.

In any case, the General procedure to streamline the company's investment activities relative to
a specific project will include completion of the following stages:

- formation investment intentions (sometimes uses the term "identification");

- development of the concept of the project (specification of tasks, selection of product of the
project, identifying funding sources, selection of project participants, pre-development
marketing and financial plans);

- development of a documented project plan (detailed investment justification and plan of action
for the period of the project life cycle);

- perednezadny analysis of the project (study of the potential of the project, the assessment of
the reality of financial plans, internal and external coherence of the project, its commercial
feasibility);

- creation (or acquisition) of investment object "turnkey" and ready to start its operation;

- operation of the investment facility and return invested in the project funds in the form of
accumulation of the current profit (this step is called the payback period);

- the net profit of the project (more than invested funds);

- the completion or liquidation of the investment project (dismantling of fixed assets, selling of
current assets and other assets, solving organizational and legal issues regarding termination of
economic activities using assets of the project).
Note that given the complexity of the relationships between types of work performed in the
individual stages of the project cycle, and the possibility of their combination, the combination
in space and time, to provide an unambiguous distribution of the phases and stages of the project
in a logical and temporal sequence is very difficult and sometimes even impossible.

The main component of the life cycle of an investment is the operational phase, the maximum
possible duration of which is determined by the economic life of the investment (economic
life), that is, the time period during which the investment project is able to generate income.

The main factor determining the economic life of the investment is the market demand for
related products, works, services. The economic lifetime of the investment ends once the market
for the product or services stops the production or provision of which is the basis of the
investment project.

On the other hand, for projects of real investment, the duration of the operational phase can be
limited to a period of the useful lives of fixed assets and intangible assets. While in the analytical
work must take into account that the useful lives of fixed assets and intangible assets, used for
depreciation, usually does not coincide with the economic life of the investment.

Directly in the investment analysis instead of the length of the life cycle often use the concept
of "investment horizon" or the "settlement period".

The investment horizon (calculation period) is the period within which to compare the costs
and benefits for the adoption of the decision on expediency of investment project
implementation.

Investment Project Analysis:

• Applicable to all projects regardless of dollar value

• Provides effective and consistent evaluation of investment opportunities

• Determines the most financially attractive projects

• Critical to financial decision-making.

The life cycle of an investment project is determined by three main phases:

- Initial (pre-investment) phase.

- Investment phase.
- Operational phase.

1. Initial (Pre-investment) phase:

Potential initiators (owners) of the project must themselves find an answer to the question on
feasibility and economic attractiveness of the entrepreneurial effort.

For this, it is necessary during the first stage to work out all economic aspects of the business
idea for vitality.

The minimal set of actions for production organization projects includes the following:

1. carry out marketing analysis and examine the demand for the product or service to be
provided;

2. develop an optimal financial model for the project;

3. develop an organizational-economic scheme of the project;

4. assess efficiency of investment in the project;

5. assess the risks;

This set of preliminary actions can be executed both as separate documents and as one common
document including all the above-mentioned aspects. Depending on the scale of the project and
initiators’ preferences, it can be a business concept, business plan or investment memorandum
formed at this stage as an internal document. This document provides project initiators with
information for making a decision concerning feasibility of further action.

With satisfactory efficiency indicators and acceptable risk one can proceed to the second stage
of planning, technical, technological, preliminary permissive and other decisions that will form
the basis of the future project. These decisions are formed in the Feasibility Study of the project.

If the Feasibility Study satisfies the project initiators and they are ready to proceed with its
realization, then during the third stage on the basis of decisions incorporated in the Feasibility
Study corrections are introduced for the documents of the first stage, for instance – business
concept. Besides, it may be supplemented by proposals for potential investors and further on
can be used not only as an internal document but also as a document for attraction of external
financing. Besides that, during the third stage additional presentation materials may be prepared
to attract financing for the project.

Besides that, it is necessary to study the legislative base of the region of investment.

Summing up the owners’ initiative realization during the initial stage, we can speak about the
need for a thorough study of entrepreneurial effort and making a well-balanced investment
decision considering the options:

1- The idea is viable and supported by calculations.

2- The implementation work must be continued;

3- The idea is viable; the calculations show that it does provide the owners (for example) with
the required return on investment;

4- The idea is viable, but for the start of the project and transition to the investment phase the
time is not right. There must be a pause for a more successful start.

2. The investment phase:

At this stage, concrete actions are taken requiring much bigger expenses and of irrevocable
nature. As a rule owner show initiative for attraction of external financing which includes:

1. loans;

2. issue of additional shares or securities;

3. leasing;

4. attraction of a financial or strategic partner to the project;

5. attraction of investment funds;

6. attraction of funds from other sources.

Summing up the above on investment phase of the project, we can speak about serious
reduction of investment costs of the project provide that:
• there is comparatively cheap external financing;
• maximally possible state support on federal and regional levels is obtained (Regional
legislation of RF subjects provides for the following types of state support: investment
tax credit, regional budget guarantees, reduction of interest rate on loans with regard to
compensations stipulated by regional budgets during implementation of projects in
priority areas for this region, tax exemptions from three to seven years on priority
projects for the region in case of favorable consideration of document according to the
established procedure, exemption rates for land plot lease for the construction period,
other kinds of government support.
In aggregate, state support may reduce project costs up to 10%. Besides this, there are
legal exemptions in the tax and customs legislation such as reimbursement of VAT,
reduction of customs duties to zero on a number of commodity code listing of external
economic activity and other privileges.)
 Investment Project cycle
Macro & Micro economic aspects

Economic development depends upon investment.

New investment is a necessary condition for economic growth.

Enhancing the value of produced goods & services that comprises a country’s economy depends
upon mobilization of capital.

The private sector is always source of investment ideas VS the government agencies responsible
of development inform project sponsors of national parties and by stimulating investment
through policies & incentives.

Microeconomics vs. Macroeconomics:

An Overview
Economics is divided into two different categories: microeconomics and macroeconomics.
Microeconomics is the study of individuals and business decisions, while macroeconomics
looks at the decisions of countries and governments.

Though these two branches of economics appear different, they are interdependent and
complement one another. Many overlapping issues exist between the two fields.

Bottom-up vs Top Down Approach

Microeconomics:
Microeconomics is the study of decisions made by people and businesses regarding the
allocation of resources, and prices at which they trade goods and services. It considers taxes,
regulations and government legislation.

Microeconomics focuses on supply and demand and other forces that determine price levels in
the economy. It takes a bottom-up approach to analyzing the economy. In other words,
microeconomics tries to understand human choices, decisions and the allocation of resources.

Having said that, microeconomics does not try to answer or explain what forces should take
place in a market. Rather, it tries to explain what happens when there are changes in certain
conditions.

For example, microeconomics examines how a company could maximize its production and
capacity so that it could lower prices and better compete. A lot of microeconomic information
can be gleaned from company financial statements.

Macroeconomics:

Macroeconomics, on the other hand, studies the behavior of a country and how its policies
impact the economy as a whole. It analyzes entire industries and economies,

rather than individuals or specific companies, which is why it's a top-down approach. It tries to
answer questions such as, "What should the rate of inflation be?" or "What stimulates economic
growth?"

Macroeconomics examines economy-wide phenomena such as gross domestic product (GDP)

and how it is affected by changes in unemployment,

national income, rates of growth and price levels.

Macroeconomics analyzes how gross domestic product (GDP) is impacted by

the unemployment rate.
Project Development Process:

The PDP involves a series of stages of preparation.

The process is iterative.

Accumulating information at later stages requires review and perhaps modification of

approaches of prior stages. (context, content, engagement.)

Pre-investment phase:

Four such stages in the pre-investment phase:

- Opportunity studies - identification of investment concepts;

- Pre-feasibility studies - preliminary project preparation;

- Feasibility studies - final project preparation and the assessment of its feasibility and fiscal
sustainability;

- Final evaluation - the stage of final review and decision on the project.
Pre-feasibility study: preliminary assessment of viability of the action that usually takes
place in the identification stage of the project cycle.

Pre-feasibility study is a preliminary study undertaken to determine, analyze, and select the best
business scenarios.

Pre-feasibility studies generally cover the same subjects as feasibility studies but do so in much
less detail.

Who does the work?

• Consultants.
• Government officials.
• Plant engineers.
• Bankers.
• Foreign JV companies.
Top 5 Economic Indicators To Track:

• Inflation – Inflation measures the cost of goods and services.

• Employment – People with jobs can spend and invest.
• Housing – In a land of increasing house prices, banks lend and the economy booms.
• Spending – We live in a consumption-based society.
• Confidence – Although it is elusive, confidence drives everything.

In countries where investment resources are scare, there is a need to take care of their
allocation.

1. Project study and planning is the key to efficient utilization of resources.

2. A well-planned project and executed plan are a roadmap to successful investment.

3. An investment project must be developed, must be prepared by study – compiling and

analyzing relevant information.

4. The project is appraised according to the criteria if it’s a worthwhile investment.

5. The project idea should be promoted either to attract investors or to acquire the
necessary resources – fund –

6. The project implementation involves planning, construction and commissioning (carry

out the plan of production, sales & distribution).
 Project Development

PMO Framework:

A PMO is the backbone of a successful project management approach at an organization. It is

a function that provides decision support information.
PMO Build-Out:

the most mature PMOs provide:

Governance: ensuring that decisions are taken by the right people, based on the right
information. The governance role can also include audit or peer reviews, developing project
and programme structures and ensuring accountability.

Transparency: providing information with a single source of the truth. Information should be
relevant and accurate to support effective decision-making.

Reusability: stopping project teams from reinventing the wheel by being a central point for
lessons learned, templates and best practice.

Delivery support: making it easy for project teams to do their jobs by reducing bureaucracy,
providing training, mentoring and quality assurance.

Traceability: providing the function for managing documentation, project history and
organizational knowledge.
Conclusion: A project is:

• Defined with starting and ending Date

• Defined content, budget and results
• With specified deliverables and appropriate allocated resources
• Unique Work
• Managed based on its scale and complexity and his strategic importance of the
organization.
• A Team work non repetitive, not of support or of daily operations

Some Examples of Projects

• New ERP for your organisation

• New software or application

• An upgrade of Your Lab of PCs

• LAN Installation
Investment project activities must be grouped into phases because by doing so, the project
management and the core team can efficiently plan and organize resources for each activity,
and objectively measure achievement of the goals

Project life cycle activities must be grouped into phases:

• The Project Life Cycle refers to a logical sequence of activities to accomplish the
project’s goals or objectives.

• Regardless of scope or complexity, any project goes through a series of stages during
its life.

• There is first an identification phase in which the outputs and critical success factors
are defined.

• Followed by a planning phase characterized by breaking down the project into

smaller tasks

• An execution phase, in which the project plan is executed

• and lastly a completion phase, that marks the closure and exit of the project.
Project life cycle and the main two components: PM and project development

What’s the difference between them?

PM is to ensure that we have the management infrastructure in place for the project delivered
on time and on budget and with customer satisfaction.

Project delivery is the detailed tasks that the entire team are going to undertake to produce the
project results.

In terms of Magnitude, both are important, PM is for Project Managers and the team leader.