Topic 1: Investment

Project
Development

Identification, Preparation,
Appraisal, Promotion,
Implementation

Prepared by: Pham Thai Binh, Ph.D

Learning Objectives

A. What is an Investment?

B. The investment project development process

C. Components of the investment development process

D. Phases in investment projects

E. Macro and Micro-economic contexts of investment projects

A. What is an Investment?
Types of Investments

Business investments are meant to generate profits or for value

Business Investments creation by an enterprise, while public investments are directed
towards offering services to the citizens of a country.

Public investments involve spending on infrastructure like

roads, rail networks, ports, energy plants, telecommunications,
Public Investments and water systems. Often termed "mega projects" or public-
private partnerships (PPP), these initiatives can last for decades
and greatly impact the country's economy.

Personal investments are made by individuals for their

Personal Investments personal safety, security and wealth creation
 Investment Project Development Process
Promotion

IDENTIFICATION PREPARATION APPRAISAL IMPLEMENTATION

Investor / Participant’s criteria

Investment Opportunity Market Analysis Commercial Investment Opportunity

Investors / Participants Financial Analysis / National Investors / Participants

Economic Analysis

Business Concept Business Concept Investment Decision Business Concept

No Yes
Revise
Recycle
Project
IDENTIFICATION
• The Identification phase focuses on spotting investment opportunities, involving key
participants, and formulating initial business concepts.
• Investment Opportunity:
o This involves identifying an idea or area with investment potential.
o Example: A government sees potential in renewable energy projects, such as solar farms, to support its
sustainability goals.
• Investors/Participants:
o Engaging stakeholders such as private investors, government bodies, or international organizations who
may fund or participate in the project.
o Example: Companies like Tesla or Siemens show interest in collaborating on the renewable energy project.
• Business Concept:
o Developing a rough outline of the project’s goals, benefits, and potential structure.
o Example: Drafting a preliminary proposal that explains the purpose of the solar farm, projected energy
output, and expected environmental benefits.
IDENTIFICATION

Matching
Sources of Project Generating
Screening Idea with the
Project Ideas Profiles Impact
Promoters
IDENTIFICATION
Step Description
Scan sources of project ideas Identify potential business opportunities from various sources to make an
informed investment decision.
Project profile Transform the project idea into a business model and plan by defining business
assumptions using available data. The project profile should include:
- Propose the project idea
- Design a marketing strategy
- Address technology and financial aspects
Develop selection criteria Define financial and other criteria to screen projects realistically. These criteria
may include:
- Minimum or maximum investment levels
- Leverage
- Rates of return
- Other performance indicators
Screen ideas vs. criteria Systematically screen project ideas based on investor or promoter criteria and
categorize them into different groups.
Impact returns/ social benefits Evaluate the project idea in terms of social and environmental benefits offered
to society, alongside financial returns.
PREPARATION
• The Preparation phase focuses on deeper analysis to determine the project's feasibility.
• Market Analysis:
o Examining the market demand, trends, and competitors to determine the viability of the project.
o Example: Analyzing energy market trends to see if there’s sufficient demand for solar power and
understanding competing energy providers.
• Financial Analysis / Economic Analysis:
o Assessing the project’s financial viability and economic benefits, including costs, risks, and returns.
o Example: Calculating the cost to build the solar farm (e.g., $20 million) versus the projected revenue from
selling solar power over 10 years.
• Business Concept:
o Refining the business concept based on the analysis to prepare it for decision-making.
o Example: Revising the proposal with detailed financial metrics and risk mitigation strategies.
PREPARATION

SET DESIGN TEST SELECT PROVIDE

PREPARATION Test:
- Pre-feasibility study: a more in-depth
study, particularly with regard to some of
the questionable features
Provide recommendations: A
consultant's recommendations
should originate from the
project study. The consultant
- Support studies: at any stage of may identify constraints that
development, special support studies render a project infeasible,
can be required covering signification indicating what must be done to
features of the project such as test solve the problem. If the project
marketing, product analysis, carrying is considered feasible, there
capacity of infrastructure services, etc. should be a high probability of
success, even when risk factors
are taken into account.

SET DESIGN TEST SELECT PROVIDE

Setting goals: to Design the project: to detail the Select optimal configuration:
discover and analyse process for implementing facilities, an optimal project design
the investment organization, systems and operations. should be selected and the
opportunity, specify and Design step includes: Collect configuration justified on the
validate the project information, Study the project in its basis of how well it meets the
value and scope environment, Analyze results, Estimate criteria of participants and
performance indicators, Assess risks other parties
APPRAISAL
• The Appraisal phase focuses on evaluating the project against investor or participant criteria,
ensuring it meets financial, commercial, and national goals.
• Investor/Participant’s Criteria:
o Investors will evaluate the project based on their Commercial and National interests.
o Example:
✓ Commercial: Private investors assess profitability and ROI (Return on Investment). For instance, Tesla ensures the solar
farm will deliver a profit margin above 10%.
✓ National: Government bodies assess broader impacts, such as job creation, energy independence, or climate goals.

• Investment Decision:
o Based on the appraisal, a decision is made: Yes (approval for implementation) or Revise/Recycle (if
changes are needed).
o Example: The project is approved if the ROI meets investor expectations and aligns with national priorities.
Otherwise, stakeholders request revisions or propose recycling the concept for alternative opportunities.
IMPLEMENTATION
• Once the investment decision is positive, the Implementation phase focuses
on executing the project.
• Investment Opportunity:
o Reaffirming the opportunity and proceeding with operational steps.
o Example: Acquiring land for the solar farm and obtaining permits.
• Investment Decision:
o Investors/Participants:
✓ Ensuring stakeholders are actively involved, providing capital, resources, or expertise.
✓ Example: Investors transfer funds, and Siemens begins delivering solar panels.
o Business Concept:
✓ Putting the refined business concept into action.
✓ Example: Construction of the solar farm starts, with contractors managing timelines, budgets, and
quality.
Opportunity Study
Objectives:

• Refinement of business Idea: explain why the idea should work in the
proposed environment and its basic operating characteristics.

• Preliminary evaluation of alternative approaches: marketing variables

(4Ps or more), technology, location and site, capital structure,…

• Preliminary assessment of the strengths and weaknesses of the

business concept (alternative configurations) should be considered.
Pre-feasibility Study
• Intermediate level of detail based primarily on secondary data.

Objectives:

• Premilinary Project Assessment

• Identify Project Alternatives

• Identify critical aspects that require Support Studies

Support Study
• Performed by Technical Experts. Highly focused, of a limited
scope, and provide a detailed technical analysis to obtain a
satisfactory level of confidence in the results.

Objectives:

• Provide detailed technical analysis of critical design features.

Types Support Study
Feasibility Studies
Objectives:
• Provide commercial, technical, financial and economic data
needed for investment decision making.

Characteristics:
• Clear project Concepts & Criteria
• Comprehensive Project Design
• Quantified Prediction of Performance
• Consistent and Defensible
Target Precision in Pre-investment Studies
+/- 30%
of investment &
production costs

+/- 20%

+/- 10%
Feasibility
Studies

Pre-feasibility
Studies

Opportunity
Studies
The Investment Appraisal Workflow
Project Stakeholders
• Investors
• Financiers
• Guarantors
• Regulators and Licensing Authorities
• Suppliers
• Investment Promotion Agencies
• Employess
• Customers
Project
Implementation
Macro-Micro Economic Context of Industrial
Investment Decisions: Economy vs. Enterprise
Macro-Micro Economic
Context of Industrial
Investment Decisions:
Economy vs. Enterprise
External
Factors
Influencing
Investment
Project
Demand: Market Demand for
Products or Services
Understanding Market Demand
Market demand is essential for driving investment decisions, impacting
how businesses approach their operations.

Aligning Business Strategies

By understanding consumer needs, businesses can better align their
production and investment strategies to meet market expectations.

Consumer Needs and Trends

Identifying consumer trends helps businesses adapt to changing
preferences and ensures their products remain relevant.
Natural Resources: Availability of Raw
Materials and Natural Resources

Impact on Industrial Investment

The availability of raw materials directly influences industrial
investment decisions, guiding companies on where to establish
operations.

Production Costs
Access to natural resources can significantly lower production costs,
allowing companies to remain competitive in the market.

Sustainability Considerations
Investors must consider sustainability when evaluating access to
natural resources, focusing on long-term ecological impacts.
Human Resources: Availability
and Quality of Labor Force
Importance of Labor Quality
A high-quality labor force is crucial for driving productivity and
fostering innovation within an organization.

Labor Force Availability

The availability of skilled labor influences investment decisions, making
it essential for businesses seeking growth.

Competitive Advantage
A skilled and readily available workforce can provide companies with a
significant competitive edge in the marketplace.
Physical Environment: Geographical
and Environmental Conditions
Impact on Logistics
Geographical factors such as terrain and climate significantly influence
logistics planning and operational strategies.

Accessibility Considerations
Environmental conditions can affect accessibility to locations,
impacting the efficiency of supply chains and transportation.

Operational Efficiency
Understanding geographical and environmental conditions is essential
for enhancing operational efficiency and reducing risks for businesses.
Economic Environment: Inflation,
Interest Rates, and Economic Growth

Impact of Inflation
Inflation rates influence purchasing power and cost structures,
impacting both consumers and investors in the economy.

Role of Interest Rates

Interest rates play a crucial role in shaping borrowing costs and
investment decisions, affecting overall economic activity.

Economic Growth Indicators

Overall economic growth indicators help assess the health of the
economy, guiding investment strategies and expectations.
Technology Adaptability: Ability to Adopt
and Integrate New Technologies

Importance of Technology Adaptability

Adopting new technologies is essential for maintaining competitiveness
in today's fast-paced market.

Investor Assessment Criteria

Investors must evaluate how effectively companies can innovate and
respond to technological advancements.

Sustained Competitiveness
The ability to integrate new technologies leads to sustained
competitiveness and long-term success in business.
Distribution Infrastructure: Availability and
Efficiency of Transportation and Logistics
Networks

Importance of Distribution Infrastructure

An efficient distribution infrastructure
minimizes operational costs and improves
timely delivery of goods, enhancing business
performance.

Impact on Location Decisions

Accessibility to transport and logistics
networks significantly influences businesses'
location decisions, impacting overall
operational effectiveness.
Competition: Level of
Competition in the Market
Importance of Competition
Understanding competition is essential for making informed investment
decisions in any market.

Investment in Innovation
A high level of competition drives businesses to invest more in
innovation to stay ahead.

Market Differentiation
Companies must strategically differentiate their offerings to succeed in
a crowded marketplace.
Social and Ethical Constraints: Social Norms and
Ethical Considerations Impacting Business
Operations

Influence of Social Norms

Social norms can shape consumer behavior and expectations,
influencing how companies operate within society.

Ethical Considerations
Ethical considerations guide businesses in making decisions that align
with moral principles, affecting their reputation and trust.

Corporate Social Responsibility

Maintaining corporate social responsibility is essential for businesses
to build trust and positive relationships with stakeholders.
Political and Legal Structure: Government
Policies, Regulations, and Legal Framework

Impact of Government Policies

Government policies play a crucial role in shaping industrial
investments by providing incentives or imposing restrictions.

Regulatory Environment
A clear regulatory environment is essential for investors to navigate
the complexities of legal requirements and compliance.

Legal Framework for Investments

Investors must understand the legal frameworks that govern industrial
operations to ensure profitability and sustainability.
Internal Factors
Affecting
Investment
Decisions
Location: Strategic Location of
the Enterprise
Influence on Operational Efficiency
The location of an enterprise significantly impacts its operational
efficiency by optimizing logistics and reducing costs.

Market Reach Enhancement

A strategic location allows enterprises to expand their market reach
and cater to a larger customer base effectively.

Supplier and Resource Accessibility

Proximity to suppliers and essential resources can provide a
competitive edge for businesses in their operations.
Business Infrastructure: Availability of
Essential Business Facilities and Services

Access to Banking Services

Reliable banking services are essential for businesses to manage
finances, secure loans, and facilitate transactions.

Legal Services Availability

Access to legal services ensures businesses comply with regulations
and protect their interests in various transactions.

Utilities and Services

Essential utilities such as electricity, water, and internet are critical for
the efficient operation of businesses.
Marketing and Branding: Strength of the Company's
Marketing Strategies and Brand Reputation

Importance of Strong Marketing

Effective marketing strategies can significantly improve a company's
market positioning and overall attractiveness to investors.

Evaluating Brand Reputation

Companies should regularly assess their brand reputation to ensure it
aligns with marketing efforts and market expectations.

Market Positioning Strategies

Strong market positioning involves a clear understanding of the market
landscape and competitive advantages.
Human Resources: Skills and
Expertise of the Internal Workforce
Impact on Productivity
The skills and expertise of employees directly influence overall
productivity levels within an organization.

Innovation Enhancement
A skilled workforce drives innovation, leading to new ideas and
improvements in processes and products.

Operational Efficiencies
Well-trained staff can streamline operations and improve efficiency
across various business functions.
Intellectual Property: Ownership of Patents,
Trademarks, and Proprietary Technology

Competitive Advantage
Owning patents and trademarks can create a competitive edge in the
marketplace, allowing companies to differentiate themselves.

Investment Value
Intellectual property enhances investment value by protecting
innovations, making businesses more attractive to investors.

Safeguarding Innovations
Patents and trademarks play a crucial role in safeguarding innovations,
ensuring creators retain control over their inventions.
Financial Strength: Financial
Stability and Access to Capital
Importance of Financial Strength
A company's financial strength directly impacts its potential for new
investments and growth opportunities.

Access to Capital
Having access to capital is crucial for implementing growth initiatives
and pursuing new projects effectively.

Maintaining Financial Stability

Maintaining financial stability is essential for supporting long-term
growth and sustainability in a company.