Today, due to constant changes in the external environment, the multi-stage process of planning and implementing a large project is burdened with a high level of risk. Even top-tier experts note the high level of complexity that arises when it comes to investment decisions pertaining to the construction of large facilities. This is especially true in projects concerning industrial facilities and energy infrastructure.
It is important to note that such projects are particularly complex and multifaceted, wherein, there are varied stakeholders involved including dozens of companies and financial institutions. This is further coupled by the addition of thousands of potential customers. Hence, all decisions related to such investments are subjected to the risk associated with the uncertainty of financial, macroeconomic and legal factors as this can gravely change in the long term while can also adversely affect participants of a given project.
Investments in fixed assets which are focused towards limiting the effects of asset depreciation while ensuring the gradual replacement of aging equipment. This is actually imperative for maintaining existing production capacity, further allowing for an increase in production volumes, if deemed necessary.
Furthermore, investment decisions might also involve long-term or short-term investments in financial instruments of other desirable entities. This is carried out to obtain control over them or reap some additional benefits by receiving a part of their profits.
Adding to this, another form of investment could be the lending to companies, which is an example of an investment decision with a clear financial component. Determining the basis of their functioning, investment decisions are among the most important activities of companies.
Now let’s delve into the core principles:
Irreversibility: Once decisions are made, it is always certain that they end up with losses or profits. Here, the business does not have any option or a remedy to quickly reverse the wrong decision because of the long-term investment planning.
Scale: An investment project can contribute to the successful development of a company or the deterioration of financial health up to bankruptcy. This is due to a long-term freezing of significant resources. Here, the investments involve significant costs, which can limit the possibility of making alternative decisions on the allocation of funds to other projects.
Risk: All major projects are burdened with high external and internal risks. This is further due to their complexity and constantly changing market dynamics. Here, it requires the use of professional investment consulting services during the planning stages. This will greatly help in reducing the level of uncertainty.
Also to note, each investment is unique and requires tailored/personalized financial and organizational solutions. As we all know that the implementation of an investment project is a long process and full of various unexpected situations, it is best suited to first determine and constantly optimize the resources which are necessary for its successful implementation. These resources should comprise knowledge, skills, experience and collaborative efforts of people, facilities and equipment, information & technology and funds.
Always Go Extra Mile: Horizontally & Vertically
This feature of investment projects requires the application of various complex evaluation methods in order to correctly assess their limitations, risks, cost, profitability or expected payback period. The more factors to evaluate and the wider the time horizon of the project, the more difficult it is to make the right decision. With this, investment consulting services have gone beyond an advantage for businesses to becoming a necessity. Having said that, making an investment decision requires the development of a professional plan. Also, there must be a widespread use of up-to-date market information while taking into account the conditions of activity of a given business entity.
Also, utilizing a project-specific step-by-step model, major investment decisions should always be made incrementally. This enables project participants to avoid serious procedural errors which can significantly affect the profitability of an investment project or in the worst case, even lead to its failure. Hence, investment decisions are closely related to qualitative analysis and selection of investment projects.
High financial costs, prolonged capital freeze and reduced liquidity, relatively high investment risk, high dependence of the project on good planning. introduction of immature/risky technologies, uncertain investment outcome, and a long implementation period.
So to say, the accuracy of investment decisions has a credible impact on the competitiveness of a business, its market share, and as well as its ability to generate income. To conclude, one of the most critical factors for any given business when it comes to the success of an investment decision is partnering with competent consultants. So to say, the hiring of experienced experts or experts is necessary, especially given the implementation of a large project.
