Many people are not clear as to what an investment project really is, and this often becomes apparent when moving from the needs identification and prioritisation stage of phase 1, to the project profile identification and assessment in this phase. As a result of such confusion, ideas will often be presented which are not really projects and considerable time can be wasted attempting to prepare profiles on the basis of these ideas. It is useful, therefore, for the field technician to sit with the group at the beginning of the profile stage and ensure that they understand what an investment project is, and what it is not.
In broad terms an investment project can be defined as follows:
“The expenditure of resources in the present, in order to generate benefits in the future”
The key elements of this definition are that resources (whether these be in the form of money, land, labour or other assets) are used in this year but that the benefits come in future years. If benefits are generated in the same year but not in the future (e.g. fertilizer to be applied to a current crop), this is not an investment project, but rather the purchase of inputs for current operations. Most investment projects generate a stream of benefits; that is to say, a single investment now will result in benefits being produced each year for a number of years into the future. It is also important to remember that the future benefits do not have to be directly in cash earned, and may not even be in a form that is easy to define. The benefits from building an access road to a village can be substantial, but they are often difficult to define clearly, and may include such elements as: (i) better access for local people to social services in the nearest town; (ii) easier and cheaper delivery of inputs to the community; (iii) easier shipment of products from the community to external markets; (iv) establishment of new businesses in the community and; (v) reduced outmigration of young people who no longer feel so isolated, and who now have improved employment opportunities at home.
Not all results of an investment may be positive. In the example given above, the access road may also result in faster deforestation around the community and increased erosion on slopes crossed by the road. For this reason, the design of a project may need to include measures to reduce these negative effects.
Under the definition given above, expenditures on education and training can be classified as an investment project, as they involve dedicating resources now (to train a person), and produces benefits in the future (as the person applies his or her training). While this is theoretically correct, many financing agencies are reluctant to fund local investment projects that are completely based on education and training. In part this is because it is difficult, if not impossible, to ensure that the person stays in the position of activity for which he or she was trained. If they leave, the benefits of their training go to their new employer or activity somewhere else, possibly in another country. Secondly, it is much easier to monitor and control investment activity when physical objects are involved. If the project is to build a greenhouse for flower production, for example, it is relatively easy to check that the greenhouse has in fact been built. That is not to say that training cannot comprise a part of an investment project – in fact it is often an important element of many projects. However, in such a case training costs are just one element in a larger investment.
Preparation of Project Profiles
The heart of phase 2 is the preparation of the project profiles. It is critical that this takes place within the community or area where the applicants live, and that preparation is not moved for the sake of convenience to the offices of the technical agency, where only a handful of villagers (at best) will attend, and even then may well feel intimidated by the unfamiliar surroundings. No elaborate equipment is necessary for this work; although flip charts or blackboards are useful, they can easily be substituted for by large sheets of paper attached to the wall of the schoolroom, meeting hall or private house, using sticky tape or tacks. When using paper, thick markers are necessary, as most of the group will have trouble seeing names and numbers written with a normal pen.
In the early stages, many doubted that rural people, often largely illiterate, could really contribute to, and understand, a project proposal and analysis. Our experience has clearly shown that this is not true. While not all participants may be able to read the individual items written on the board – a sewing machine, for example, or an irrigation pump – they will certainly understand the numbers put against them. We will return to this topic again when we discuss the assessment phase of the topic.
It is important that, where possible, the members of the group do their own investigations as to costs and prices related to the idea they are putting forward, and do so before the session at which the project profile is prepared. If a group believes that a community-run river transport company would contribute significantly towards resolving key constraints within the area, then they had better have some understanding of how much launches, outboard motors and fuel will cost.