THE 3 TYPES OF INVESTMENT PROJECTS AND THEIR CHARACTERISTICS - DUDAS - 2025

An investment project could be defined as an organization's plan to use available resources to achieve future performance. Generally, the desired performance is inexpensive.

However, and as we will see later, there are certain projects whose objective is to generate a positive impact on the well-being of certain communities. Therefore, it is considered that they do not seek economic benefit, but solve problems such as poverty or cure diseases.

Investment projects can be divided into different types depending on what criteria are taken into account. A good way to divide them generically is by following the criteria of what your ultimate goal 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. 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.

For this, the Research and Development departments of the companies strive 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 least investment.
• The funds invested are private.

Types of private investment projects

Within this type of investment project, there are a wide 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 launch 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, approval by the company's board of directors and senior officials is most likely required.

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 where 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 elsewhere.

Replacement project to continue operations

There are times when you have to make a change in order to continue operations. An example would be the replacement of a part that has gone bad on a production machine.

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

Replacement project for reduced costs

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

An example would be the replacement of the previous machine part with a more modern one with improvements that facilitate the process.

For this type of project, a greater and more detailed analysis is required than the previous one, in order to estimate if this investment is really going to 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 they 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, thus compensating for 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 who manages and executes the projects.
• Public funds are invested, collected through taxes.

Types of public investment projects

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

Infrastructure projects

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

This includes many types of infrastructure: education (universities), health (hospitals), sports (stadiums), energy (dams)…

Business development projects

This type of project seeks to help small and medium-sized companies and promote entrepreneurship, making grants and aid in order to facilitate the generation of activity.

An example might be a grant for tech startups.

Environmental projects

In environmental projects, the ultimate goal is the improvement of the environment. For 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 people's well-being. This is where public services such as water and sanitation, judicial, health, social services, security, transportation, etc. would enter.

They should not be confused with the social investment projects that we will comment on later, since the latter may 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 solely social impact.
• They can be financed privately or publicly: 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 and brand image strategies; However, whatever the reason, little by little it is settling in 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 one and the other is that in this type the purpose 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 Administration Course. Editorial Norma. Colombia
4. Inversion-es (sf). Investment-es.com
5. Shapiro, E. (1972) Macroeconomic analysis, Ediciones ICE