Project Life Cycle Stages & Investment Analysis
Sequence of the Project Life Cycle
The project life cycle begins with the visualization and in-depth analysis of a problem, culminating in the identification and implementation of the best solution.
Pre-Investment Stage
This stage encompasses the formulation and evaluation processes for studies supporting a project. Its purpose is to solve a specific problem or address an identified need.
Phases of Pre-Investment:
- Idea: Identifying the core problem to be solved and brainstorming potential solutions.
- Profile: Further defining the problem and outlining viable solutions.
- Pre-Feasibility: Conducting a more detailed evaluation of viable alternatives and determining their suitability.
- Feasibility: Refining and improving the recommended alternative, typically based on specifically collected information.
- Design: Developing the detailed plans for the chosen solution.
Objective of Pre-Investment
To gather all available information to minimize the risk of failure in predicting relevant project variables. The cost of this process generally increases with the amount of data required.
Key Aspects to Verify in Pre-Investment
- The project effectively solves the identified problem.
- The selected alternative is more convenient than other available options, and no better alternative exists.
- The project adheres to technical standards and demonstrates superior profitability ratios compared to similar projects.
Common Modifications in the Pre-Investment Stage
Modifications may include:
- Deferring the project start.
- Joining or merging with another project that seeks complementary objectives.
- Refusing consent due to unreasonable inconvenience or estimated costs.
- Approving the project without any reformulation.
Investment and Execution Stage
This is the phase where the project materializes and is built or implemented.
Operation Stage
During this stage, the project achieves its objective. The installed production unit begins generating the product or service, fulfilling the specific goal of solving the problem.
Evaluation of Results
To assess whether the project effectively responded to the problem, it is necessary to verify, a reasonable time after its operation, if the problem has indeed been solved by the project’s intervention.
Economic Principles & Project Resources
Efficiency
Efficiency involves achieving the desired outcome with the least amount of resources, or conversely, obtaining higher profits with the same amount of resources.
The Economic Problem
- Material needs are virtually limitless.
- Financial resources are limited.
Since not all material needs can be met, we are compelled to choose between alternatives. The goal is to select the best alternative in an efficient manner.
Resources Involved in Project Investment
These are all resources that have a monetary impact for the purpose of implementing the project.
Types of Resources:
- Investing Resources: Associated with the initial composition of the project’s assets.
- Operational Resources: Associated with the ongoing operations and maintenance of the project.
Relationship of a Project to the Market
Market Fundamentals
A market is a place (not necessarily physical) where goods and/or services are traded.
- Demanders (Consumers): Individuals or entities who use the market to purchase a product or service that fulfills one or more needs.
- Market Demand: The sum of all individual demands. It depends on the number of demanders in the population, their incomes, tastes, and the prices of the product/service or competing alternatives.
- Suppliers (Producers): Individuals or entities who use the market to sell their products or services to obtain monetary value.
- Market Offer (Supply): The sum of all individual offers. It depends on the number of competing companies offering the product, the price of the good, the technology used in its production, and the price of inputs.
Project Evaluation & Decision Making
Project Evaluation
Evaluation involves analyzing collected information to form a quantitative and qualitative opinion regarding the advisability of investing in or justifying the implementation of a project.
The Decision Process
This is the process of choosing or selecting an action from two or more possible alternatives. Various operational mechanisms determine whether to invest in a particular project. Decision-making levels are diverse and variable. Projects are typically interdisciplinary and require support from different technical units.