The main goal of investing money in different types of projects is to increase capital. Before you make a profit, you must initially fully recoup the investment.
Payback is the starting point at which the project will generate profit for the investor. We analyze the specifics of its payback period. The implementation of the project is an important point that requires detailed explanations.
Features of the concept
The return on investment is the period of time that will be required to completely cover the income of the initial investment costs invested in it. For example, if the investment amounted to about 500 thousand dollars, and the cash flow is expected for the finished project in the amount of 100 thousand rubles annually, then the project (payback period) will be five years.
This parameter is one of the main indicators that are used in assessing the investment attractiveness of a project. Often, specialists also calculate the following indicators:
- internal rate of return;
- current net worth.
The terms and stages of the project are designated by PP.
Classification by time
In the case when uniform incomes are assumed according to the introduced idea, a simple formula for determining its payback is used. In this formula, the initial investment cost of the project is divided by the annual cash flow that it generates.
The term of the investment project is an indicator of its effectiveness and efficiency. Any project has a time limit for which it must be completed.
It is customary to distinguish the following types of projects, depending on the implementation period:
- short-term, designed for 1-2 years;
- medium-term, the duration of which is estimated 3-5 years;
- long-term, lasting 10-15 years.
Settlements for uneven cash flows
In this case, another mathematical formula is used in which for a minimum time period cumulative cash flows must exceed the investments made.
Suppose that they invested 500 thousand dollars in the idea, and the growth of cash flows is indicated in the table.
| Term, years | Attachments | Project Cash Flow | Cumulative cash flow |
| 1 | 80 000 | 80 000 | |
| 2 | 120 000 | 200 000 | |
| 3 | 145 000 | 345 000 | |
| 4 | 160 000 | 505 000 |
The calculation of the project implementation period shows that the idea pays off in four years. Consequently, cumulative cash flow in the amount that exceeds the invested funds in the idea of $ 500,000 can be achieved by the end of the fourth year of its implementation.
The method of calculating the payback time is currently considered to be in demand. Professionals recognize it as a convenient tool in the implementation of investment analysis, since it is easy to calculate.
Among the shortcomings inherent in him, distinguish the impossibility of accounting for changes over time in the value of money. This leads to a significant change in the calculated data.
Calculation of the discounted payback period
Such calculations are carried out in order to assess the timing of the project. DDR is defined as the ratio of cash flow generated by an investment project to the size of the initial investment.
With proper calculations, you can avoid numerous additional costs. This is especially true at the stage of installation and construction work, when it is important to understand whether the deadline for the implementation of the construction project will fail.
The Importance of Project Timing Management
In the legislation of our country, under the implementation period, ideas are understood for some time, during which financing and construction of capital construction projects are provided for by the plan.
Under the planning period of the investment project is understood a five-year period during which state support contributes to the implementation of the initiative.
Since the main term for the implementation of the idea consists of the amount of time spent on the work at each stage, you need to find out the budget (allocation of costs) of time at all stages as accurately as possible.
Important details
The terms of the project are also related to the level of responsibility of contractors who carry out certain work. If it is necessary to implement a large-scale plan, in this case, a specific contractor is responsible for each stage. In the event of a failure of one of them, the activity of another organization is substantially inhibited. Ultimately, such a process ends with significant investor losses.
The timing of the project is influenced by several factors:
- territorial or organizational scope of the plan;
- technology used to implement the idea;
- implementation of the idea or the development of a unique project with the help of a team of professionals.
Modernity
Currently, management science deals with various types of management, which involve significant risks, changes in value. In order to avoid them, practitioners and various researchers apply different solutions to the problem. For example, it is proposed to think over the planning of the event horizon.
Network scheduling technique
This technique is suitable for undertakings that are related to capital construction. This is a model that illustrates how the idea will be implemented in terms of processor and time parameters. Such a schedule is a tool for analysis, coordination, description by the parties (customer, investor, general contractor) of the technological process of construction work.
It also includes the possibility of adjusting the intended algorithm of actions, thinking through risks and potential problems, minimizing negative consequences.
It is impossible to ignore the fact that ordinary people are engaged in the preparation of such schedules. That is why various problems often appear, and there is a deviation in terms of time from the intended time frame.
For example, if a scheme is drawn up according to which capital investments are mastered, when conducting several parallel operations, negative overlays systematically appear.
In such situations, the critical path is often displayed manually, so it is difficult to call it an economically feasible calculated indicator. Most often, the value is simply “drawn” to the desired date, periodically violating it. Such a schedule puts only time constraints on the designated executors; it does not depend on other factors: logistics, readiness of communications, staff qualifications.
In such a case, the project manager does not have the opportunity to predict the timing and quality of the implementation of the idea with high probability, to influence the course of events. In this regard, the process of delaying the completion of specific stages of all construction work today is very common. We have to look for additional material resources in order to complete the project that has begun, to commission the object.
Important aspects
In order to avoid significant disagreements with the contractor selected for the project regarding the duration of certain operations, customers are often forced to seek additional consultations on the plan with engineering companies.
Their experts analyze the work associated with the compilation of certain databases or reference books, which determine the duration of the standard or standard construction work. Such materials give the customer the opportunity to avoid a significant delay in work on the part of contractors.
In some cases, the customer has to make a choice: use the quick, but expensive option, or choose a contractor for a lower cost, but tune in to long-term construction work.
In those situations where the end result of the idea being implemented is obtaining material profit, the investor chooses the first option, which contributes to a significant reduction in the time of the preliminary and investment phases, allowing him to recoup the invested resources in the shortest possible time.
Conclusion
When implementing a social project, its value becomes a key point. That is why the customer uses calendar and network planning, which is based on the technology for the implementation of the necessary actions.
With the correct and detailed description of the technology, its coordination with the investor and contractors, it is quite possible to distribute the timing of specific actions. Such planning helps to avoid delaying construction work, therefore, additional costs for staff maintenance, interest payments, maintenance and repair of equipment, and additional rent are not required. It allows you to identify those organizations that are guilty of delaying the construction time, to apply measures of influence to them.