The 3 Types of Investment Projects and their Characteristics

A investment project it could be defined as an organization's plan to use available resources in order to achieve future performance. Generally, the performance sought is economic.

However, as we will see later, there are certain projects whose objective is to generate a positive impact on the well-being of certain communities.

Investment projects can be divided into different types according to which criteria are taken into account. A good way to divide them in a generic way is by following the criterion of what their final objective is. Thus, we could separate them into three: private investment, public investment and social investment.

Private investment projects

Projects of this type refer to those whose sole purpose is to make the investment profitable in an economic way. For this reason, its capital comes from companies and organizations in the private sector, which seek to recover it and obtain a future financial benefit.

To this end, the Research and Development departments of the companies take pains to explore the various options in order to improve existing products or services, search for new markets, or discover more efficient ways of operating, among other tasks.

Characteristics of private investment

• Its objective is to achieve economic and financial profitability, in order to recover the initial capital investment.
• The maximum possible benefit is sought on the smallest investment.
• The funds invested are private.

Types of private investment projects

Within this type of investment projects, there is a great variety of subtypes, depending on where the capital is invested:

New products or markets

A very common investment in the private sector is one that seeks to enter a new product or service or a new market. For this, capital is necessary to produce and start up the new line of business.

This type of investment could change the nature of the business. Therefore, a very detailed financial analysis of it is necessary. In addition, it is very likely that approval by the board of directors and senior management of the company will be necessary.

An example of this investment could be a new electronic device created by a technology company. This product could also be aimed at a new market for the company.

Expansion of existing products or markets

There are cases in which the company wants to expand geographically, probably due to a large growth in demand.

For this type of investment, an analysis is also necessary, although perhaps not as detailed as in the case of new products or services. This is because the process is already known, albeit on a smaller scale, which will help to implement it in other places.

Replacement project to continue operations

There are times when you have to make some changes to be able to continue operations. An example would be the replacement of a piece that has been damaged in a production machine.

This case is one of the simplest, since, being a piece that was already possessed, it is known and its results are easy to estimate.

Replacement project for cost reduction

This type of investment project is very common in companies today. It refers to the substitution of some processes by others with the intention of reducing the final cost.

An example would be the replacement of the piece of the previous machine by another more modern and with improvements that facilitate the process.

For this type of projects a greater and more detailed analysis than the previous one is required, in order to estimate if that investment will actually reduce future costs.

Public investment projects

Public investment projects are managed by the state, with public funds. Therefore, here the benefit is not only economic, but also social: that can be enjoyed by the greatest number of people.

There are cases in which even without having a profitability, the social impact is very large, which compensates the return in this other way.

characteristics

• It seeks to achieve an improvement in social welfare.
• Profitability is measured in social impact.
• The State is the one that manages and executes the projects.
• Public funds are invested, collected through taxes.

Types of public investment projects

Among the many public projects, we will comment on four that are part of the most important: those of infrastructure, business development, environmental and social.

Infrastructure projects

These projects are public works that have the objective of being used for an economic activity (improving production, generating employment, creating a greater economic activity) or for a social activity (helping to improve the living conditions of certain groups).

Within this enter many types of infrastructure: education (universities), health (hospitals), sports (stadiums), energy (dams)...

Business development projects

In this type of projects, the aim is to help small and medium-sized companies and promote entrepreneurship by providing subsidies and aid to facilitate the generation of activity.

An example could be a subsidy for new companies in the technological field.

Environmental projects

In environmental projects, the ultimate goal is the improvement of the environment. To do this, it invests in awareness programs, waste treatment, recovery of degraded areas, conservation of protected areas, etc.

Social projects

Within public investments, social projects are those aimed at improving the well-being of people. Here would enter public services such as water and sanitation, judicial, health, social services, security, transport, etc.

We must not confuse them with the social investment projects that we will comment later, since the latter can also come from private capital.

Social investment projects

Finally, social investment projects are those whose objective is only to generate a positive impact on society.

characteristics

• Its purpose is the improvement of society : Its final objective is a uniquely social impact.
• They can be financed in a private or public : Although this is a historically public type of project, more and more private companies are making investments with a purely social purpose. There are people who criticize these actions, arguing that they are only marketing strategies and brand image; However, whatever the reason may be, little by little it is settling in the companies. A clear proof of this is the entry into play of the famous Corporate Social Responsibility.

Types of social investment projects

The types of projects for social investment would be the same as those for public investment. The only difference between them is that in this type the end of the project is purely social, and that the funds can come from private or public organizations.

• Infrastructure
• Environmental
• Social
• Local development
• Etc.

References

1. León, C. (2007). Investment evaluation. Peru
2. Cohen, E. (1992). Evaluation of Social Projects. Twenty first century. Mexico
3. Círculo de Lectores (1991). Basic Course in Administration. Editorial Norma. Colombia
4. Inversion-es (s.f.) Investment-es.com
5. Shapiro, E. (1972) Macroeconomic analysis , ICE Editions