Types of Investments/Projects
Types of Investments/Projects
Capital investments/projects may be classified in different ways. Following are the major classifications given by different authorities.
1. Quantifiable and Non-Quantifiable Projects : The projects, where it is possible to make a quantitative assessment of benefits, are called quantifable projects e.g. projects concerned with industrial development, power generation etc. Where such an assessment of benefits is not possible, the projects become non-quantifiable projects e.g. projects comprising health, education, social elfare etc.
2. Sectoral Projects : Indian Planning Commission◆has made another classification of projects. According to this classification, a project may fall in anyone of the following categories:
●Agriculture and Allied Sector
●Irrigation and Power Sector
●Industry and Mining Sector
●Transport and Communication Sector
●Social Services Sector
The sector classification is very important for the
purposes of resource allocation at the macro level.
3. Techno-Economic Projects : Projects are classified into three categories on the basis of techno-economic classification:
(i) Factor Intensity-oriented Classification-Factor
intensive or labour intensive. If large investment is made in intensity classification categorises the projects into capital intensive. On the other hand, if the project involves large planing & machinery, the projects will be termed as capital number of human resources, it will be labour intensive.
(ii) Causation-oriented Classification- Causation
oriented classification classifies projects as demand based or raw materials based. If there is an existing demand for the goods or services, the project will be termed as demand based, but if the base of the project is the availability of raw materials skills or other inputs, the project would be termed as raw material based.
(iii) Magnitude-oriented Classification-Magnitude
oriented classification is based on the size of investments involved in the project. On the basis of this classification, the project can be large scale, small-scale or medium scale project.
(iv) Strategic and Tactical Investment- A strategic
investment is one that has a significant impact on the direction of the firm. The decision of a textile company to investment in a readymade garments factory may be regarded as a strategic investment. A tactical investment on the other hand, deals with implementing a current strategy as efficiently or as profitably as possible. An investment by the same textile company to replace old machines to improve productivity would represent a tactical investment.
(v) Classification based on Planning and Control-
Capital investments are often classified by companies in different categories for planning and control. A few of the categories based on this classification are as follow:
(a) Mandatory investment- A mandatory investment 15 a capital expenditure required to comply with some statuCory requirements e.g. pollution control equipment, creche in the factory etc.
(b) Replacement investment- A replacement investment is needed to replace worn out and obsolete equipment with new-equipment to reduce operating costs, increase the yield and improve quality.
(c) Expansion investment- Expansion investment is needed when an enterprise has to increase its operating capacity to cater to the growing demand for its products.
(d) Diversification investment- When the enterprise decides to produce new products or services or decides to enter into new geographical areas, the required investment is known as diversification investment.