Project Development and Evaluation: From Idea to Implementation

Posted on Nov 24, 2024 in Other subjects

What is a Project?

A project seeks an intelligent solution to approach aimed at solving a problem. A project involves systematically collecting, creating, and analyzing information, often within economic history, to qualitatively and quantitatively assess the advantages and disadvantages of allocating resources to a particular idea. Projects may vary in ideas, investment levels, technologies, and methodologies, but all aim to resolve human activities across various facets, such as education, food, health, and culture.

Essentially, a project is an economic activity designed to increase the wealth of those who undertake it. It comprises two key elements: an initial investment and a series of future cash flows that offset the initial investment.

What is an Investment Project?

An investment project is a plan that, given a certain amount of capital and supplies, can produce a good or service beneficial to individuals or society.

What is a Social Project?

A social project assessment compares the benefits and costs of a specific idea for a particular community. Both social and private evaluations use similar criteria to study project feasibility but differ in assessing the associated costs and benefits.

Social project evaluation is a complex process involving three levels of analysis:

  1. Profile: Identifies the problem, its causes, project objectives, alternatives, and evaluates these alternatives by comparing the benefits and costs of scenarios “with project” and “without project.”
  2. Prefeasibility Study: Includes technology selection, location, size, and optimal timing, allowing for a better definition of the project and its components.
  3. Feasibility Study: Establishes the fundamental technical aspects of the project: location, size, technology, implementation schedule, launch, organization, management, and financial analysis.

For smaller projects, a profile analysis may suffice.

Project Preparation and Evaluation

Project preparation and evaluation involve several stages to minimize risks and predict outcomes. These stages are:

  1. Market Study
  2. Technical Study
  3. Organizational Study
  4. Identification of Expected Flows (Economic-Financial Study)

Structuring a Project: Key Considerations

When structuring a project, consider the following:

  1. Accurate determination of cash flows
  2. Capital amortization
  3. Depreciation
  4. Seasonality
  5. Policies, Costs, Shopping, Expenditure
  6. Giro (for service or production companies)
  7. Development Period
  8. Time Value of Money
  9. Economic Conditions (Environment)
  10. Inflation
  11. Risk
  12. Etc.

Project Requirements

A project must meet three basic requirements for successful execution and goal achievement:

  • ORGANIZATIONAL STUDY
  • TECHNICAL STUDY
  • FINANCIAL ECONOMIC STUDY
  • MARKET RESEARCH
  • DETERMINING INVESTMENT FLOWS (EXPECTED INITIAL +)
  • PREPARATION AND EVALUATION OF PROJECTS

These requirements are:

  1. Consistency: Goals, objectives, and characteristics align with national, sectoral, enterprise, or regional targets.
  2. Feasibility: Resources (physical and human) necessary for implementation and operation are available in the project’s environment.
  3. Viability: Evidence demonstrating the likelihood of successful project implementation, after feasibility has been established. A project cannot start development before being deemed viable and consistent.

There are three types of feasibility:

  • Technical Feasibility: Compatibility between the technical process and its application in the specific case.
  • Economic Feasibility: Measures project outcomes versus alternative resource use (opportunity cost).
  • Financial Feasibility: Determines the availability of necessary financial resources, whether internal or external.

Projects can be categorized as investment projects (aiming for economic benefit) or social projects (aiming to satisfy community needs).

Project Classification

Projects can also be classified by:

  1. Objectives:
    • Economic (Investment)
    • Social
  2. Purpose:
    • Nature of goods/services: Production of material goods (e.g., industrial projects) or services (e.g., telecommunications, public services, education, health).
    • Type of consumer: Production for domestic demand (e.g., food) or export (e.g., copper, timber, salmon); economic projects (natural resource exploitation) or social projects (health, education); production of marketable goods (agricultural plantations) or non-marketable goods (school gardens).
  3. Duration:
    • Immediate production (industrial projects)
    • Deferred production (renewal of natural resources)
    • Capital-intensive or long-term
    • Moderate investment

Types of Projects

Projects broadly fall into two categories:

  1. New Business Projects: Involve creating an entirely new company.
  2. Going Concern Projects: Decisions within an existing company to improve benefits and minimize costs, including:
    • Outsourcing: Reducing direct costs by outsourcing non-core services.
    • Internalization: Ensuring quality and supply sources through vertical or horizontal integration (mergers).
    • Substitution/Replacement: Changing operations, often technologically, to optimize product quality.
    • Extension: Maintaining market share, avoiding competitors, securing new markets, and achieving economies of scale.
    • Neglect: Abandoning a project based on poor expectations or threats to profitability.

Steps in Project Preparation and Evaluation

From identifying a need (national, sectoral, regional, or enterprise) to implementing a solution, several stages are involved:

  1. IDENTIFICATION: Planning stage to gather ideas for projects that meet estimated or planned goals.
    • Idea Level: Detect latent or specific needs, diagnose the situation, investigate the extent of needs, and identify possible solutions. Detecting investment ideas is crucial for pre-investment studies.
    • Planning: Project description, resource inventory, investment estimation, income/expenditure account, and analysis of funding sources.
  2. PRELIMINARY STUDY (PROFILE): Initial review of technical, economic, and financial feasibility using readily available public information. This is less costly and time-consuming than subsequent studies.
  3. CONCEPTUAL STUDY: Explores market research, resources, possible location, and alternative techniques, leading to a more precise estimate of investments, costs, and revenues. This stage involves creating specific information through surveys, testing, prototypes, and organizational studies.
  4. FEASIBILITY STUDY: Detailed preparation based on previous stages, including:
    • Project description and development area
    • Demand analysis for goods/services
    • Size and location determination
    • Engineering project (technical aspects, construction plans, equipment selection, implementation schedule)
    • Investment calculation and resource distribution over time (cash flow, budgets, projected income statement)
    Feasibility studies rely on specific evidence and a multidisciplinary evaluation team.
  5. DEVELOPMENT: Project implementation stage, following the decision to invest. This includes final plant design, detailed construction plans, machinery/equipment specifications and purchase, construction proposals, internal organization, and procedure manuals. Funding is secured and adjusted as needed. This stage concludes with start-up tests and a trial run.
  6. PERFORMANCE (OPERATION): Normal operation of the new company and initial production, based on the project but adjusted for any changes that occurred during pre-investment.