The decision to
embark on an investment extends beyond determining the profitability or
otherwise of an investment, for example; an investment that is poorly provided
or badly implemented may render and erstwhile investment proposal and exercise
in futility because seen proposal may eventually turn out to out rightly
unprofitable or manage to break-even. Investment can be in the form of capital assets
or rural assets.
Investment planning
should not only consider an exhaustive investment appraisal but take a
panoramic or systemic view of proposals from the conception of the idea to its
implementation even beyond to an ex-post evaluation leading to a follow-up action
on such investment proposal.
A comprehensive investment
decision process could therefore be seen in the form of investment cycle.
·
- Investment
identification and definition
A
prospective investor will have to define where his areas of interest lie. For example,
an investor must decide whether he is interested in investing in financial assts
or real estate investment. He may further need to identify the industry/sector
of his interest or that suits his investment objective.
The following
indicators may serves as a guide to identifying profitable investment.
o
The data of imports, export and domestic consumption
of an article serves as a pointer to the profitability or otherwise of an investment
proposal / project. Base upon this figure, an operator will be able to decide
on project whose supply is not in excess or product with high level of market
demand.
o
A project can also be identified by making use
of the input – output model. This model will indicate the input/out that
crosses from one industry to the other. This relationship will help to determine
the level of investment required to supplement imports. It will also indicate
if demand can be expanded and hence the need to embark on new project.
o
A project can be initiated on the basis of
identification of raw materials i.e, where there is abundant of raw materials,
it may be profitable to embark upon project that make use of these raw
materials.
·
Investment
formulation, preparation and feasibility analysis
This
is the investment simulation stage. It considers theoretical worthiness of the
project, then the preparation and feasibility stage which seeks inter alia to find out the degree
of feasibility of the investment. This is done by carrying out a feasibility
study which collect and analyze data or statement about the project.
· Project design
This
stage sets to ensure that investment is adequately designed to meet the objective
of the investor and the demand of the environment. For example, with respect to
real investment, if a project is to located in area without water supply, the
operator must improvise.
· Investment
appraisal
This is a details investment evaluation stage, during which the
worthwhuileness of a project is determined.
The evaluation
will inter alia seek to achieve the
following;
o
Analyze the market demand to determine the level
of demand
o
Collect and analyzed data on the cost structure
of the investment
o
Analyze the profitability of the project
o
Identification of sources of raw materials
o
Analyze the manpower (skilled and unskilled)
need of the project and its availability or otherwise within the economy
·
Project
selection, negotiation financing and approval
Project
selection involves making choice out of alternatives. This decision is
facilitated through the investment appraisal procedure which must have
estimated the profitability and degree of worthwilness of the projects for easy
comparison and final choice. The acceptability of a project will therefore
require negotiation for supply of machinery and other inputs. It also require
making adequate arrangement for its financing operation and installation.
After this stage, the proposal is expected to be presented to
the government or board (incase of a company) for evaluation and final approval
·
Monitoring,
supervision and control implementation
This
stage involves appointment of experts to implement the project (activation). It
also includes the formulation of an organization to implement the project by
negotiating with suppliers, agents(eg brokers), engineers, etc
·
Supervision,
Monitoring and control stage
This
stage is very important as it aims at ensuring that the project is properly completed on time in
order to avoid escalation of the project cost which has often been the major
cause of projects abandonment or in the case of financial investment to ensure
that the investment meet the aspiration of the investor.
Conclusion: Taking the above
steps into consideration, an investor should be conversant or follow those
stages in investing on a project.
0 Comments