Project Studies: Preparation and Evaluation Essentials
Chapter 1: Project Studies
Preparation and Evaluation of Projects
A project, as a smart solution to a problem or a blueprint for building a business, is a response to an idea. Projects are evaluated based on their convenience, efficiency, safety, and profitability in solving the problem. The solution to the economic problem involves gathering the necessary background and information to allocate scarce resources to the most efficient, viable alternative.
ACF (Adjusted Cash Flow) optimization is crucial before preparing and evaluating a project to ensure the best solution for the goal. Changes in political, technological, or other contexts should not hinder project evaluation. However, an assessment is necessary for making informed decisions.
Decision-Making Associated with a Project
The key to effective decision-making lies in having concrete bases and a thorough understanding of the variables involved. This ensures the best possible decision.
A justified body of knowledge is essential to establish the advantages and disadvantages of allocating resources to an idea or goal. This process is known as project evaluation.
Types of Projects
Project evaluation is an instrument that provides information to decision-makers regarding investment.
Objective or Purpose of the Study
Depending on what the evaluation aims to measure, we can identify three types of projects:
- Studies measuring the profitability of the project.
- Studies measuring the profitability for investors.
- Studies measuring the project’s ability to meet payment obligations.
Purpose or Investment Objective
The purpose for which resources are allocated determines the investment focus of the study used to evaluate projects. This includes:
- Creating new businesses.
- Modernization projects that may involve outsourcing.
- Internalization of services.
- Equipment replacement.
- Expansion of a productive sector.
- Abandonment of a product.
Project Evaluation
Evaluations are based on future estimates, typically spanning a 10-year period, with simulated scenarios. These scenarios should be validated through verification mechanisms.
Social Assessment of Projects
Social assessment compares the potential benefits and costs of an investment to the community. While companies operate with market criteria, social assessment uses social or shadow prices. Direct benefits are measured by the increase in national income resulting from the project, adjusted by a factor reflecting market distortions.
Indirect Social Costs and Benefits
These correspond to changes in the production and consumption of related goods and services resulting from the project.
Intangible Benefits and Social Costs
These are qualitatively considered by assessing the potential effects of the project’s implementation on the community.
Projects in Development Planning
Planning is a gauge of the future and present. While the future is uncertain, it depends on our approach. Exploring and inquiring about the future helps us decide proactively, leading to greater effectiveness.