Investment and investment project management processes

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Author of the article:

Sultanov Iskander Anvarovich

Founder of Projectimo.ru

Recent publications by the author:

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The motives for investment activity are the needs of business development and rehabilitation. However, investments are not a natural, self-organizing form of company activity. This circumstance creates the need for actions referred to as investment management. One of the most important management objects are investment projects, which, in turn, occupy the lion's share of all project activities of the organization. Investment and project management processes, integrated with a common management system, are beginning to occupy a dominant position in modern business.

What are investment and construction projects

An investment and construction project is a complex of legal relations, actions and documents aimed at investing funds in the development, reconstruction and subsequent operation of objects. ISP is implemented in the following areas:

• justification of the economic feasibility of development or reconstruction, calculation of costs, payback periods and projected profitability indicators;
• work to attract funds for construction from third-party investors (if the entire volume of capital investments is not made by the customer himself);
• obtaining initial permitting documentation for surveys, design and construction work;
• design, survey and commissioning work, construction or reconstruction of the facility, commissioning;
• registration of permits and title documents for the facility.

To attract third-party investments and interact with creditors, a single business plan is usually drawn up. It can be referred to in negotiations with counterparties and government agencies, banks and private investors. To manage an investment and construction project at the stage of survey, design, construction and commissioning, the customer can enter into an agreement with the technical customer and delegate to him all the necessary powers.

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Project management involves working with design and initial permitting documentation for the facility

The problem of improving the development of construction organizations has forced us to expand research in the field of development and implementation of new forms, methods and management systems in order to increase the competitiveness and efficiency of their functioning. One of these forms is “development” (from the English to develop – to develop, develop, reveal).

Development in Russia is a type of business that emerged in the conditions of the emergence of a market economy from related areas of business activity in the fields of real estate, investment and construction.

According to domestic scientists I.I. Mazur, V.D. Shapiro, N.G. Olderogge, who are engaged in research in the field of real estate management and development, “a developer is a participant in the professional services market, providing the creation, management and sale of real estate; and development is a special process and a special type of professional activity (business) associated with the qualitative transformation of real estate and ensuring an increase in its value. The key features of development are precisely qualitative, that is, fundamental transformation and an increase in the value of real estate, including the efficiency of investments.”

In this article, the author examines this term in a broader concept. Development – ​​as a system for managing the process of creation and development of real estate, as a result of which a change in its physical, economic, legal properties occurs and an increase in its value is ensured.

Why exactly a system, and not a type of activity in the field of project management? In order to answer this question, we should first consider the very concept of “control system”.

Control systems are considered systems that are designed to influence a control object in such a way that it transfers this object to the desired state and/or assigns the parameters of the processes occurring in it certain quantitative or qualitative values ​​under the influence of control signals or influences. [2, page 11]

Meskon M.H., Albert M., Khedouri F., point out that a system is usually called something that solves a problem, and in the glossary they give it the following definition: “A system is a unity consisting of interdependent parts, each of which brings something specific to the unique characteristics of the whole.”

The same authors point out that there are two main types of systems. Closed systems have rigid, fixed boundaries; their actions are relatively independent of the environment surrounding the system. Open systems are characterized by interaction with the external environment, from where they receive energy, information, materials, and can and must adapt to changes in the external environment in order to survive. Organizations are considered open systems because they interact dynamically with the external environment.

Large components of complex systems are often systems themselves (for example, the area of ​​project management in development). These parts are called subsystems. Subsystems, in turn, can consist of smaller subsystems. Since they are all interconnected, the malfunction of even the smallest subsystem can affect the entire system. R.A. Fatkhutdinov gives the following definition: “A systems approach is a methodology for studying objects as systems. The system consists of two components; 1) external environment, including input and output from the system, connection with the external environment (look inward, primary); 2) internal structure - a set of interconnected components that ensure the process of influence of the subject of management on the object, processing of input and output and achieving the goals of the system (a view from the inside, secondary).

System structure is a set of system components that are in a certain order and combine local goals to best achieve the main (global) goal of the system. The number of system components and their connections should be minimal, but sufficient to fulfill the main purpose of the system.

Decision-making method - the method of choosing methods for collecting and processing information, forms of motivation in combination with the decision-making method, determines the speed and quality of decision-making.

Building a system - determining the number of system components necessary for normal functioning to achieve its goals, structuring the components by hierarchy levels (analysis) and establishing connections between them. The correctness of structuring is verified by synthesis or addition of components, starting from the lowest level of the hierarchy.

The functioning of the system is the organization of the interaction of energy and matter of the system to achieve planned goals, coordination, accounting and control, motivation and regulation of the interaction of system components.

System development is the process of improving the system based on studying the mechanism of competition, the laws of reproduction, the development of needs, saving time, etc., ensuring the survival of the system.

System training is the process of accumulating knowledge and instilling in the system skills in making rational management decisions.”

R.A. Fatkhutdinov also gives about 30 rules for applying a systematic approach to the formation of a management system, which makes it possible to create an effective and complete management system that corresponds to any even very complex management object, for example, such as an investment and construction (development) company. As rules, he defined the mandatory consideration when forming a control system of such properties of complex systems as the primacy of the whole over the part, the property of non-additivity (the irreducibility of the properties of a system to the sum of the properties of its parts), the property of minimality and sufficiency of the components of the system to achieve its goals, the property of simplification (optimization) levels of management) and automation of production and management processes, the property of flexibility, the reasonableness of the limits of the multiplicity of descriptions of the system due to the multiplicity of its properties, the property of sufficient independence of the system components for its normal functioning, the property of minimal connections with the external environment, a high degree of openness of the system in conditions of global competition, provided ensuring all types of security and others.

The control mechanism is usually considered as an integral part of the management system, providing influence on the factors on the state of which the result of the company’s activities depends. By definition M.I. Kruglova “... An integrated management mechanism is a set of economic, motivational, organizational and legal (and in some cases political) methods of targeted influence of business entities and influence on their activities, ensuring coordination of the interests of interacting parties, objects and subjects of management.” [3, page 126]

The effectiveness of the management mechanism and the success of the company depends on both external and internal factors. Environmental factors are divided into factors of direct and indirect impact. The company, through its decisions, can control the factors of direct impact. Managing indirect impact factors is, in principle, also possible. However, such management requires more resources and has longer-term consequences. Commercial organizations in their practical activities consider the factors of indirect impact to be certain (deterministic). Forecasting methods are used to determine their value. [4, 65 pages]

As noted earlier, management systems for investment and construction (development) projects are quite complex. In the interests of analysis or synthesis, they must be subjected to decomposition - division into components, in particular, into control loops. A control loop, as is known, is a part of a control system designed to control one process or its parameter.

The allocation of separate control loops within the control system is used to ensure management efficiency and reduce the risk of conflicts between teams in various control loops. Such division can be made either organizationally (structurally), or technologically, or by dividing management processes in time, or by assigning priorities for the execution of commands, etc., which is also used in the development system.

In principle, a development company is a diversified investment and construction holding or even a corporation, where the term “corporation” means a complex, developed structure (system) consisting of several legal entities, each of which occupies its place in a certain hierarchy and has its own purpose. This hierarchy of legal entities (Figure 1.1.), as well as the functions they perform (marketing, strategic management, construction and installation work, operation, etc.), will be subsystems and contours of the overall project management system - “development system” .

Figure 1 — Structure of a development company when implementing investment and construction projects.

It should be noted that not all legal entities that participate in the process of creating and implementing an investment and construction project are part of the structure (system) of the development company. They can be public and private companies participating at certain stages in the implementation of the project, but the more of them are included in this investment and construction holding and fall under the general management of the development company, and, consequently, the management system as a whole, the more effective this system will be function. In turn, these companies, which are subsystems and circuits in the management system, will perform certain functions of management, organization, motivation, control, etc., which will also form subsystems and circuits in a certain sequence and hierarchy.

Thus, the development concept fully meets all the parameters and characteristics of management systems and has every right to be called a system. Further, when using the term “development”, the author means a “management system” for the creation, development and management of real estate.

In accordance with the classification of real estate objects, the following types of development can be distinguished: • land development (land plots), or land development; • residential real estate development; • development of office real estate; •development of retail, entertainment and recreational real estate; • development of warehouse premises; • industrial real estate development; • development of objects of socio-cultural significance. What is common to the development of real estate is the complexity and variety of tasks that a development company faces when implementing development projects. [4, p.52]

In this article, we examine the functioning and application of the development system using the example of creating a cottage village. Being a complex investment and construction project, the construction of a cottage community is a good example to illustrate the application of this system.

The creation of a suburban residential complex includes two types of development in accordance with the classification of real estate objects - land development (land development) and residential real estate development (cottages, townhouses, etc.). Both in Russia and abroad, many developers are engaged in these types of development simultaneously. When both activities are carried out on the same site, they are most often considered as one project (for example, the creation of a low-rise residential complex). However, these are two different types of development activities, and each of them needs to be analyzed according to its own indicators, organized and controlled based on different principles and using different methods and tools.

In any development project, the main efforts are aimed at reducing risks and increasing profitability. Solving problems that arise at each stage of the project (Table 1.2.) is aimed precisely at achieving these goals.

In table 1.2. presents the main stages and phases of the project to create a suburban residential complex, the totality of which represents the life cycle of the entire project, which is managed using the “development” system.

Table 1 — Life cycle of a development project (using the example of creating a cottage village)

The solution to each problem brings a certain added value to the final property. Thus, based on an analysis of Russian practice in suburban real estate development, we can say that a thorough analysis of the market and the correct choice of land allows one to make an investment decision, which in terms of efficiency differs from the “average market” decision by 20-50% for the better.

Preliminary justification of investments allows, as a rule, to optimize the use of investment funds by another 10-15%. Proper registration of property rights and resolution of other legal development issues can increase the value of a land plot by another 150-300%. Only transferring land from one category to another or changing the intended purpose of a land plot can increase the value of land by 100-200%. Design and engineering and technological development of a land plot increases its value by another 150% on average.

It is obvious that resolving issues at the land development stage has a decisive impact on the overall effectiveness of the development project. These figures also explain why land development as an independent development business has become widespread abroad and has enormous development potential in Russia. [4, p. 459]

In addition to traditional tasks, development, as a management system, also includes the implementation of certain additional functions, in particular management of the operation of the infrastructure of a land plot. The land developer must ensure the effective functioning of energy supply systems, gas supply, water supply and sewerage, sewerage, organize work to maintain the territory in proper condition, create security and video surveillance systems, and much more. The developer is not obliged to perform all these functions independently, but may invite one or more operating organizations to operate the land plots and infrastructure. But at the same time, the developer is responsible to the property owners for the quality of the services provided.

As the market becomes saturated, maintenance service becomes an increasingly decisive market factor influencing the acquisition of real estate. Unlike innovative technological, engineering and construction solutions, which can be copied and mastered fairly quickly, service is not an activity that is very easy to copy. This is especially true for the Russian economy, which has historically focused on the “material”, technical component of business and is constantly lagging behind in terms of quality customer service. In addition, it is the service that is able to create a certain unique atmosphere that harmoniously connects the features of architectural and engineering solutions with nature or the urban environment and, ultimately, a feeling of high-quality and comfortable existence. [4, p. 453-454]

In conclusion, we can say that the positive impact of suburban real estate development on the economy can be reduced to two aspects: microeconomic (regional) and macroeconomic. The regional aspect of the influence of development is that the development of real estate leads to a qualitative change not only in the real estate objects themselves, but also in their surroundings. Efficiency is determined by an increase in the market value and profitability of real estate located on the territory, an increase in tax and other revenues to the state budget and, most importantly, an improvement in the well-being of the population in a given territory (the emergence of new jobs, the development of social infrastructure, landscaping of the territory, etc.) .

The macroeconomic aspect is determined by the high multiplier effect of business activity in the real estate sector. Investments in real estate lead to increased activity in a number of related sectors of the economy: in the production of construction materials, housing and communal services, and the production of durable consumer goods, ultimately ensuring an increase in gross product and employment in the country. Based on the above, it should be noted that the qualitative transformation of real estate within the framework of development is characterized by the unity of physical, economic and legal processes.

The physical processes of development ensure that the property acquires new consumer qualities that meet the changing needs of society. These changes can be dramatic (transformation of an undeveloped plot of land into a cottage community) or not very noticeable in appearance (change in the intended use of the land). But they are always present, being a necessary feature of development, a necessary condition for increasing the economic effect of using the object.

Economic development processes are implemented in the form of an increase in the value of a property due to physical changes made. The increase in value is ensured not by any physical transformations, but by those that meet the requirements of the market and the needs of its consumers. The greater this correspondence, the higher the value of the created object, the higher the efficiency of development.

Legal development processes are associated with the legal registration of the changes made, the emergence of a qualitatively new property with a value greater than the original one. [4, p. 27-28]

Data from the largest foreign and domestic developers indicate and confirm the receipt of the following positive results from the implementation of the development system as a professional activity in the organization (management) of investment and construction projects:

• reducing the duration of the development and implementation stages of the project by 7-15%, including the construction phase by 10-25%;
• reducing costs for the entire project by 5-15% due to:
• reducing the labor intensity of the project implementation stage by 5-15%;
• reducing the cost of construction by 10-20%;
• reducing operating costs by 15-25%.

____________________

A cottage community is an organized low-rise suburban residential complex, created in accordance with the General Development Plan according to a unified architectural concept and consisting of households with a fenced and guarded territory, a unified infrastructure and its own maintenance service. (author)

Types of projects

Features of ISP management directly depend on the type of project, the status of the developer, and the type of facility being built or reconstructed. Projects are classified according to the following types:

• by class - multi-projects, mono-projects, mega-projects;
• by complexity of implementation - simple, complex, very complex;
• by sources of financing - commercial, budget, mixed forms of co-financing;
• by investment volume – small, medium and large projects;
• by implementation period - short-term, medium-term and long-term projects;
• by type of building being constructed and field of activity - residential development, construction of public and industrial facilities, road and other specialized construction.

Naturally, this classification is conditional, since a project can fall under several categories and classes at once. For example, an apartment building can be built at the expense of the budget; it refers to the average volume of investment and a long-term project.

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What is included in IP management

At the initial stage of an investment and construction project, the customer determines its goals, orders calculations of risks and payback periods, and basic technical and economic indicators. At this stage, a fundamental decision is made about what kind of facility can be built on the site, based on its types of permitted use, what are the commercial prospects for the operation or possible resale of buildings and structures.

Management of an investment and construction project begins immediately after the development of a business plan and other basic documents. Obtaining permits, carrying out design, survey and other work, and monitoring construction requires not only time, but also special knowledge. Therefore, the differentiation of ISP management functions is possible in the following areas:

• concluding an agreement with an investment or management company that will deal with financial issues and attract investors;
• concluding an agreement with the technical customer, who will assume all powers at the pre-design stage, survey and design, construction and commissioning of the facility;
• concluding an agreement with the general designer and general contractor, who will be responsible for the result of design and construction.

This distribution of powers and responsibilities does not mean that the customer will only wait for the results of the project. He can coordinate overall activities, make adjustments to the goals and objectives of the project, and participate in the coordination of the concept and main decisions of the facility. Since the management of the ISP will be transferred to professional specialists, the customer will save time and money. optimizes the costs that would have to be incurred if the project were implemented independently.

Expert commentary. The success and timing of its implementation depends on the companies and specialists involved in project management. Cases where even the most promising and economically sound project ends in failure due to improper management occur all the time. When choosing a company to manage an IP, you need to pay attention to many factors - personal qualities and business reputation of managers, financial reliability, work experience, and other indicators.

The management of an investment and construction project also includes direct control over the construction or reconstruction of a building.

What is investment management

Investment management is an effective and competent investment of accumulated capital to preserve and increase it.

This process includes forecasting, analysis and planning, which result in a series of accurate, correct decisions. Investments can be managed by either an individual or a company. This set of processes is called investment management.

The basic principles of investment management include maximizing income and minimizing risks. To successfully control investments, an investor must assess market prospects, choose an investment direction based on this, develop an investment plan, launch a project and monitor results, including intermediate ones.

At the same time, investments are called correct in which:

• income from investment investments exceeds banking income;
• the investments made have the maximum possible liquidity;
• the profitability of the project becomes higher than the rate of inflation growth;
• The level of risk is acceptable and is constantly monitored.

Investments by type are divided into financial, intellectual and real. The first type represents investments in securities, bank certificates, shares and other financial instruments. Real investment is an investment in production, construction or other material sphere. Intellectual investments are made in scientific projects, start-ups and know-how.

Who manages investment and construction projects

The powers to manage an investment and construction project can be divided into financial and direct construction parts:

• financial issues are usually dealt with by venture funds, management and consulting companies, and banking structures;
• the technical customer can be a legal entity that is a member of a specialized SRO;
• the general designer can be a design organization that is part of a specialized SRO;
• the general contractor can be a construction company that meets the requirements for experience in the market, the availability of its own funds and equipment, and the volume of completed contracts.

The private customer himself chooses companies and specialists to manage the project. If the ISP is implemented at the expense of budget funds, state and municipal competitions are held. Management agreements stipulate not only powers, but also measures of liability for improper fulfillment of obligations and violations.

Approaches to managing innovative projects in Russia

In the Russian Federation, the state of affairs with regard to the development of innovation remains grim. Professional management of innovative projects is rarely resorted to in enterprises, resulting in few cases of success. And if in the 2000s the country simply did not have enough resources to implement risky projects, now the problem has become more complicated.

Innovative developments require proper assessment, which is only possible by drawing up a detailed business plan. Whatever new product we are talking about, it will either be useful and pay for itself when introduced into production, or it will not be viable.

Now both the state and private companies can invest significant funds in the development of innovative solutions. However, Russian investors, even if they have money, have a tendency to look for those business plans for investments that guarantee profit. And scientists who conduct research need start-up investments to develop all their ideas.

Selection of investment projects

You can evaluate a new development only after drawing up a business plan with accurate calculations. There are few specialists capable of doing such work and defending new ideas, as well as justifying the benefits of investments for investors. Therefore, companies wishing to make such investments face a difficult choice:

• Projects with low efficiency ratio.
• Innovative projects with a high level of performance indicators.
• Projects that can be both successful and failure.

Efficiency indicators are calculated using a method based on discounted cash flows. And the quality of calculations also requires careful checking before making a decision.

It is obvious that ineffective ideas are immediately rejected by Russian investors. Although some of them may have a positive impact on business development in the distant future. Ideas, the implementation of which will be unambiguously profitable, are rarely offered to the market. But risky projects are common, and investors are forced to work with them.

Working with risky projects

When studying design and estimate documentation, investors are guided by DSF (discounted cash flow) indicators. This analysis technique is more suitable for standard and static ideas, while innovative business plans are distinguished by their uniqueness and flexibility. It is impossible to calculate all the risks with them, and consideration requires a different management approach.

In Russia, the cascade model of project management is often used. The difficulty in assessing risks with this approach, as well as the inability to quickly respond to new circumstances, complicate the work of managers. Model 1970–1980 demonstrates its low efficiency in the current economic environment.

In our country, little attention is still paid to the competent management of innovative projects. However, for the full development of the economy, the introduction of new technological and information developments is required.

This means that investors will have to master the management of such projects based on modern techniques or learn to attract professional managers for this. Experienced managers are able to achieve maximum efficiency from risky business ideas.

What to look for when choosing a company to manage investment and construction projects

When starting to implement an investment and construction project, pay attention to the following points when choosing a company:

• for the availability of permits for conducting activities (membership in an SRO for a technical customer, licenses for a bank, etc.);
• successful experience in managing an investment and construction project (usually this information is publicly available, so it can be easily checked via the Internet);
• on the list of companies with which the technical customer, general designer and general contractor cooperate.

Carefully study the agreements for participation in the management of the IP, especially with regard to powers and responsibilities. This will simplify the resolution of disputes if they arise during the implementation of the project. ]Smart Way[/anchor] meets all the requirements to manage IP of any complexity.

Management methods

Management methods reveal the essence of management activities. They are an incentive and motivating factor for all project participants.

The more effective the method, the better the final results. Thus, its effectiveness will largely depend on which management method is chosen at the enterprise.

Today, the following methods of managing investment projects :

• network planning method (building understandable and interconnected actions for project implementation and providing the information obtained in graphical form using mathematical models and computer technology)
• method of linear graphs (allocation of time periods (stages), related types of work and persons responsible for their implementation).

Advantages of cooperation with our company

By contacting ]Smart Way[/anchor], you will receive assistance from experienced and professional specialists in managing investment and construction projects for any type of facility. Our advantages:

• favorable and transparent terms of cooperation, strict compliance with the terms of the contract;
• a full range of services for preparing initial permitting documentation, carrying out design and survey work, undergoing examination and approvals;
• quality guarantees for all types of work, saving your time and money.

You can always look at examples of previously completed work to make an informed and correct choice.

Investment design methods

The basis of modern investment design is a SCIENTIFIC approach, which involves the use of a number of investment design methods : [1]

analysis of initial data,
[2]
experimental tests,
[3]
production of technical examinations and analytical calculations,
[4]
synthesis of new data,
[5]
forecasting of production and sales and, finally,
[6]
testing of the project.

In the process of applying investment design methods, so-called computer-aided design systems (ADS)

, which involve the use of computer technology and computer programs, which makes it possible to bring investment planning to a qualitatively higher level.

conclusions

An investment and construction project (ICP) involves attracting and investing funds in the construction, reconstruction and operation of a facility in order to make a profit. The customer can independently manage all stages of design and construction work, prepare documentation, or entrust this activity to professional specialists. According to the Civil Code of the Russian Federation, all powers on behalf of the developer can be exercised by the technical customer.

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]Smart Way[/anchor] offers a full range of services for investment and construction project management. You can learn more about the terms of cooperation during a free telephone consultation.

Three Basic Investment Management Strategies

To achieve the intended investment result, it is necessary to choose an investment strategy.

It will determine the behavior of the investor and his team. Strategies are distinguished by risk and the following types are distinguished: conservative, moderate and aggressive.

Conservative investment strategy

Managing investments using a conservative strategy involves a low level of risk and an equally unattractive rate of return, which is usually no more than 20% per year.

Conservative investments are considered:

• buying gold;
• metal bills;
• purchase of land;
• bank deposits;
• savings programs for insurance and others.

The danger with such investments is that the inflation threshold may not be overcome. In order to protect yourself from the depreciation of money and make investments more productive, it is recommended to invest only part of your investments according to a conservative strategy. In this case, the investments will be called portfolio investments. When making investments of one type, investments are called direct investments.

The positive aspects of using the described strategy include:

• the long period of time that passes from investment to receipt of profit;
• fixed income, sometimes not exceeding inflation;
• low profitability (monthly profit is usually between one and five percent).

Advantage of the conservative approach: it can be used by people who do not understand investing

Basically, these investments do not need to be managed, so they are passive.

Moderate strategy for investing

With a moderate investment strategy, profitability increases to 50% per annum.

These include:

• mixed investment mutual funds;
• personal investment accounts with a yield of 18% – 30%;
• MFOs (microfinance organizations);
• investments in non-government securities;
• PAMM accounts.

The last of the listed types of investments involves transferring a trading account to other persons for conducting transactions in the stock markets.

Aggressive strategy

The most risky is an aggressive investment strategy. It is suitable for nervously stable people with large financial reserves.

By choosing this behavior when investing, investments are made in:

• new projects and startups;
• hype;
• financial pyramids;
• multi-level marketing.

By leaving money in such projects you can earn a lot (100% - 1000%), but there is a high probability of losing everything.