Before focusing on Project Analysis, you need to get an answer to what a project is. There are various definitions of what a project is. These definitions can help you understand what a project is.
In this new article you’ll learn:
- Project definition
- Project common features
- The need for and importance of project planning
- The relationship between planning and projects
- Project Analysis
- Objectives and requirements of project analysis
Let us first identify what a project is?
Project Analysis Definition
A project is a specific investment task that applies to benefit the targeted groups or individuals over some time.
A project, according to this definition, a project belongs to a specific period. And also it clearly shows who benefits. Further, there should be a definite investment plan.
According to Little and Mirrless (1974)
A project can analyze or value as an independent entity. And chosen to invest capital. But if one scheme connective with another, both plans should be considered as a single project.
According to the Dictionary of Management
A project is a specialized program that organizes a set of interconnected tasks that have a specific beginning and end to achieve the intended goals.
Simply a project is any investment program that has the critical characteristics of expected goals, expected costs, and benefits and expected period.
Project common features
- Investing money in the hope of future returns.
- Be able to identify future costs and benefits.
- There was a specific beginning and end to achieve a particular goal or several objectives.
- A process whereby planning, investing can be implemented.
- Having a group that will directly benefit from the project.
- Can specify the period over which resources and benefits required for the project.
- A project can manage entirely or in part or independently.
The modern work of economic planning began after World War II. The economic plan was used as a development strategy for developed countries and developing countries destroyed by World War II. Planning became more famous as a significant strategy for economic growth in developing countries, especially after World War II.
The need for and importance of project planning
It can divide into four main parts.
- The market failure argument.
- Resource allocation argument.
- Foreign aid allocation argument.
- Attitudinal arguments
The market failure argument
In many developing countries, the market price does not function properly on supply and demand forces. There is no perfect competition in the market. As a result of that, prices are distorted in commodity and factor markets. So, the allocation of resources not correctly represented. Therefore, this price confusion can remove through government planning.
Resource allocation argument
Developing countries have limited financial resources and huge human resources. There is a need to plan these resources for economic activity.
Often there is a mismatch between the private and public sector macroeconomic goals. The private sector produces goods and services to maximize financial profits. Therefore, there is a need for government planning to balance social benefits and costs in the long run.
Foreign aid allocation argument
here are problems in building capital for investment projects in developing countries. The main reason for this is that local savings are not sufficient for investment. As a result, these countries have to rely on foreign sources. Essential foreign sources are as follows.
- Multilateral foreign aid
- Bilateral foreign aid
- Foreign loans
- Private foreign investment
These investments lead to development projects. There, planning can focus those resources on the best projects.
There are many divisions in the population of developing countries. (Social, ethnic, religious) Attitudinal arguments mean that these divisions can eliminate through national-level planning. Different development goals can be achieved through planning. They are listed below.
- Poverty reduction
- Regional development
- Employment generation
- Reducing income inequality
The relationship between planning and projects
The macroeconomic objectives set by a country must be achieved. Accordingly, planning means distributing resources accurately and efficiently over a period of time.
Economic planning plays an essential role in economic systems. An economic plan consists of economic policies, objectives, strategies, programs, and projects.
Economic policies are the actions taken by a government to achieve macroeconomic objectives. Relevant policies are as follows.
- Monetary policy
- fiscal policy
- Foreign trade policy
- exchange policy
- revenue expenditure and pricing policies
The economic policy contains goals and objectives. The main objectives of a plan are several components.
- Achieving economic growth
- Reducing unemployment
- Reducing poverty and reducing income inequality
- Reduce and control inflation
- Maintaining the balance of payments in good condition
- Maintain a balanced economic development
In economic planning, goals set to achieve these achievements. For example
Achieve 10% economic growth during the planning period (five to ten years).
Strategies used to achieve the goals and objectives set by economic policy—these strategies are linked to programs.
A program is a scheme that is used to achieve the objectives contained in an economic plan. They can categorize as manufacturing sector programs, service sector programs, and agricultural sector programs.
An economic plan is a set of macroeconomic objectives and goals that are set to achieve over a period of time.
The above point focused on an investment plan. So how do you choose the right plan for the project?
A country has limited resources. Therefore, a choice must be made among the alternative proposals. Also, a country obtains investment resources through domestic savings or foreign savings.
Therefore, investment resources should be invested in sectors that provide maximum productivity. So there can be no other plan that offers more benefits than the plan of choice.
Thus project analysis is a technical method of selecting the highest advantages over a set of specific objectives that are socially accepted and aligned according to the will of the society.
In addition to the financial analysis of a project, there is also economic analysis. The economic analysis looks at whether the project is in line with national objectives.
The objective of the project analysis is to determine which the proposed project contributes to the goals of the national development plan.
That is, project analysis aims to select the most proper project to meet the identified macroeconomic objectives.
Objectives and requirements of project analysis
Project analysis can discuss in several objectives and requirements.
1. Maximizing financial gain or social gain
The ultimate goal of any project is to maximize return on invested capital. No entrepreneur will come forward if economic activity is not profitable.
There are two types of return on investment in a project.
- Economic profits
- Social Profits
The public sector values the profits of society. The primary objective of the private sector is to maximize financial profits. This allows for selecting the most profitable project.
2. Limit space to make the right investment decisions
Project analysis limits the possibility of making the wrong investment decisions. Establishing its profitability after launching any investment work is not effective. Project profitability should assess at the time of planning the project.
If the expected investment is not effective, the initial investment task must abandon or a change made in the plan. This prevents the wrong investment decisions. Otherwise, limited investment wasted due to incorrect investment decisions. It causes problems nationally.
3. Choosing the most effective option among alternative schemes
It is essential to choose the most suitable project after a project analysis, especially for developing countries.
In project analysis, it is possible to look at several proposals in which capital can invest and select the most practical proposal method. Here it is possible to choose cheaper alternatives. But when the risk of any scheme is low, the profit is also small so that alternative investment opportunities can line up according to the profit contribution, and the appropriate project can be selected.
4. projects execution on schedule
Project Analysis another task is to implement projects on time. Analysis Using the network analysis methodology, you can maximize profit by minimizing the time and cost of planning a project from start to finish.
5. Systematic planning of financial administration
By project analysis, financial administration can systematically plan. The capital to be invested in the project can be regularly planned to use for each sector as fixed expenditure and variable expenditure. So it is possible to minimize waste and uncertainty.
6. Employee management planning
Another important thing of project analysis is the ability to plan employee management activities. This will enable you to plan the workforce as needed and meet the needs of the employees. Before starting a project,
• Untrained workers
Meeting labour requirements can eliminate staff shortages in project execution. The quality of employees has a significant impact on the efficiency of any project.
Thus, the need for project analysis can emphasize the need to utilize limited resources for production activities in developing countries at maximum efficiency. A systematic study of the project can identify which projects are most suitable for the economy. Being able to maximize the expected financial profit and social gains of a project can also maximize social well-being.