Chapter 5

EVALUATION PROJECTS

 

by: josavere

                                                                         INTRODUCTION

With the Digital Revolution, predictive analytics looks for future results using data from the past; the models use different methodologies and mathematics with a very similar general objective; there are some techniques that are specific to classification (the results of the model are binary; a yes or a no, in the form of 0 and 1) and others that are regression techniques that allow a value to be predicted. It can also be applied to any type of unknown event in the past, present, or future. The Digital Revolution brings BIG DATA with an abundance of structured variables, such as data tables, and unstructured ones, such as texts, images, or videos that offer new possibilities for prediction. Flexible and heterogeneous prediction rules with proven ability to predict logical outcomes are now built by  combining different models, procedures, and data types. Decision Trees, Neural Networks, Support Vector Machines, Bayesian Analysis, Logistic Regression, Linear Regression, Time Series and Data Mining, K-Nearest Neighbors, Ensemble Models, Gradient Boosting, Incremental Response Models, Replace, Introducing Multiple parameters extracted from Big Data, with many advantages over the models traditionally used by statistics. Big Data Analytics is the technology used to analyze a huge amount of structured and unstructured data that is collected, organized, and interpreted by software, transforming it into useful information for decision-making and to generate ideas about market trends. In addition, it contributes to the generation of ideas for new products and services, customer attraction, audience understanding, security, and more benefits to making strategic decisions.

A characteristic defined clearly of century XXI is the lack of employment and the great need to work. The educative system must page attention to forming well entrepreneurs.

Nowadays the world has an unemployment problem, which attempts against human dignity and generates a great number of inherent conflicts due to the incapacity to take care of basic needs due to lack of income. The world requires good entrepreneurs characterized by its personal values, which the teacher FERNANDO VILLA URIBE1  summarizes as follows: 
  • The solidity of its spiritual values
  • Respectfulness
  • Honest
  • Self-assertiveness
  • Conscience watchful
  • Free, understanding this freedom as the faculty to do what one must do.
  • Humbleness
  • He gives a good example
  • He commits himself
  • He loves his work
  • Enthusiastic
  • He is punctual in appointments, supplies, commitments, debts, and gives back the telephone calls
  • Respect for his acquired qualities
  • He knows himself well
  • He is truthful (direct, noble, pleasing, faithful, friendly, reliable, and resolved)
  • He is intuitive (sense of smell to be a step ahead of the events)
  • He’s Patient
  • He possesses constructive feedback

In addition to all the qualities that an industrialist must possess he requires the know-how to evaluate projects or at least, are able to understand them for acceptance o rejection.
The certain thing is that we must learn to evaluate projects, and determine the proportions objectively to have an action guide.   Why undertake something, if the calculations show us that it is merely a business?   On the other hand, if these, calculations elaborated in the most cautious way indicate a good alternative yield why not execute it?

The crisis of the year 2020, caused by the COVD-19 pandemic or coronavirus, requires, among others, a lot of imagination to propose alternatives at the individual or group level, whose correct evaluation constitutes a basic tool for making sound decisions.

 

1. BASIC PRINCIPLES

a. Remember that you must enjoy what this doing.  We must combine likes with businesses and enjoy ourselves while we work.
b. A correlation between the capacity of investment and the type of activity must settle down. With little capital, we cannot think about a brewing industry.
c. It is more important to analyze the macroeconomic conditions to see the tendency of the country and the horizons that the government in its development plans presents. Let us remember the Matrix of sector growth (josavere) 
d. The approach must be done thinking about globalization as an irreversible worldwide phenomenon.
e. As far as possible, we must look for projects with variable structures (little investment fixes) in not order to jeopardize the resources available.
f. The trade (investment decisions) is the natural leader and its careful investigation demands time and economic resources, which are due to be involved in the project.
g. In the measurement that a good decision of investment appears it facilitates the capital gain, by contributions or indebtedness.
h. Known the market, to establish a strategy follow up which will depend on a level of income and its continuity.
i. Of being possible, the maximum indebtedness must look for in the long term.
h. When structuring a project, it is urgent to respect the principle of financial conformity, in order to neither fall into liquidity problems nor overvalue the proportions of the cash need, sacrificing yield.

 

2. PROCEDURE

a. To project the cash flow, which must be made justifying clearly the income of cash and the correlated payments wisely, to determine the proportions of them in the probable dates of occurrence.
b. To carry out calculations using calculating financier or the Excel as user acquires knowledge in the example at the end of this document.
c. To evaluate the results judiciously, using the recommendable method but in the particular case within the alternatives:
  • Net present value (VPN)
  • Internal rate of return (TIR)
  • Period of recovery

A. PROJECTIONS: the important thing is the estimation of the future income using sustainable criteria for the particular situation. It is not the same to project the future income in a cattle ranch that in cultures of neither delayed yield; nor it can be the same in chicken farms as the operation of a mine. The clear message consists of recognizing that the essential to project income, which is the knowledge of the business, considering its own factors of the particular case and the conditions of the industry in which it operates.
In the estimation of income, the financiers must act like advisers of those who know the business. The debits, by their condition of so, are easier to predict with a high degree of certainty.
In the income it is recommended to build with caution (conservative) and in the debits, covering and projecting in sub-optimal conditions, for this way of handling the operative risk in a practical way.   Knowing income and debits we elaborate a cash flow according to the model of "josavere" because it has the advantage to be prioritizing payments and in addition, it constitutes a base to structure a model of the easily auditable treasury, which allows the policies drawn up by the management are accomplished.
The model is constructed as follows: 
Income: organizing them by periods according to the business individually. 
Debits: classifying them as follows

  • Investments
  • Fiscal
  • Labor
  • Operation
  • Suppliers
  • Service to the debt

With the balances that show the periodic numbers, we have like establish if the balances are positive or negative and to take the accumulated figure during the life of the project, considering the adjustments of price and the increases in the different headings from debits, which can be bound to the inflation, the devaluation of both variables simultaneously.

B. TO CARRY OUT CALCULUS: like explain it in the chapter about financial function (book one) in which the different alternatives to evaluate projects.
Based on the knowledge exposed defined a method to use according to the characteristics of the particular case, which summary is as follows:
If one is a project of fast recovery, in a stable economy and with healthy currency, we can use the period of recovery of the investment or the accounting rate of yield.
If one is a project of delayed yield or long life profit, independently of the macroeconomic conditions it must use TIR (internal rate of return) or VPN (net present value). Both methods must take to us to the conclusion, safe in case of mutually excluding projects.
The TIR compares with the rate of cut or the minimum rate of return of the company. If the VPN is positive, indicates that the project, is acceptable mathematically, the greater the amount, the better.
The best method, incremental flows, consists of adding income and expenses to the initial flow, resulting from the value generation plan and evaluating whether the new flow is better than the initial one, calculating with the NPV which becomes a very practical tool for RISK EVALUATION.

C. EXCLUDING AND DEPENDENT PROPOSALS: when two projects are mutually excluding employees, the VPN is better than the internal rate of return like defect acceptance number. Both must reach the same conclusion (acceptance or rejection).
The calculations would consider this in Excel:

D. JUDICIOUS EVALUATION OF THE RESULTS: taking care of the capacity to generate cash because what is worth in finances it is the treasury and not the accounting results. The exceptionally good businesses appear in very few and rare occasions reason why we must use indicators that allow us to carry out Benchmarking taking care of the irreversible phenomenon of globalization.

AI Opinion: The text "Project Evaluation" by José Saúl Velásquez Restrepo addresses in a broad and detailed manner the importance of evaluating business projects and provides key principles and procedures to carry out this evaluation effectively. Here are some opinions and comments about the text:
Importance of project evaluation: The author emphasizes the importance of evaluating projects before undertaking them. This is a valuable perspective, as decision making informed by solid data and analysis is essential for business success.
Focus on the Digital Revolution and Big Data: The text highlights the role of the Digital Revolution and Big Data in the evaluation of projects, which is relevant, since technology and the availability of data are transforming the way in which projects are taken. business decisions.
Business values: The author lists a series of personal values that he considers essential for entrepreneurs. These values are important as they highlight the need for strong business ethics and a commitment to excellence at work.
Basic principles of project evaluation: The author provides sound principles for project evaluation, such as the correlation between investment and type of activity, focus on potential market, and the importance of financial compliance. These principles are useful to guide those looking to undertake a project.
Income and expense projections: The text emphasizes the importance of making income and expense projections in a realistic and conservative manner. This approach is essential to avoid unpleasant surprises in the future and ensure the viability of the project.
Project evaluation methods: The author describes several methods for evaluating projects, such as Net Present Value (NPV) and Internal Rate of Return (IRR). He provides solid guidance for selecting the appropriate method based on the circumstances of the project.
Consideration of exclusive and dependent projects: The text addresses the evaluation of exclusive and dependent projects, which is important to understand how different projects can interact and affect the company as a whole.
Emphasis on treasury: The author highlights the importance of treasury as a key indicator in business finance. This is essential, since liquidity is essential for the continuity of a business.
Benchmarking and globalization: The text mentions the need to use indicators and perform benchmarking to remain competitive in a globalized environment. This perspective is crucial in a constantly evolving business world.
Overall, the text provides a solid and detailed view of business project evaluation. The principles and procedures presented can be very useful for entrepreneurs and professionals seeking to make informed and strategic decisions in the business field.
​


___________________________________________
1. Fernando Villa Uribe, SER UN BUEN EMPRESARIO, Plaza & Janés

Copyright © 2024
Josavere