Evaluation of business investment projects for SMEs

At the proposal of the IDB, in July ppdo., The meeting of experts in small and medium-sized companies was held at its headquarters, to share their experiences and propose improvements in services to these companies, aware that the tools available are not at their disposal. scope.

According to the information published by AMBITO FINANCIERO (07/10/98; p. 12), the specialists, in addition to recognizing (or reiterating) that SMEs are the future of the world economy, with data from the OECD source, stated that they represent 50 % of the private sector in the US, 65% of the European Union and 90% of manufacturing in Latin America. In turn, the president of the Small Business Corporation of Japan, said that SMEs represent 99% of Japanese manufacturing.

In our country there are various criteria and parameters to classify small and medium-sized companies, normally used in combination. The most intensively used at present is that of occupied jobs, considering a top parameter of 50. This criterion is generally followed by government agencies in the province of Entre Ríos.

According to Table 1, on the participation of SMEs in the Entre Ríos economy, with data from the 1994 National Economic Census, 77.46% of the jobs are absorbed by these companies, participating in 54.65% of the total value of production, but adding value added to 70.36% of the total of the province.

Receiving the problems of the companies that we are dealing with in this work, the awareness, and therefore the implementation of programs, has increased in the state organisms of different levels about the need of technical support to these companies.

Along with achieving greater dissemination and adaptability of these programs, it is almost essential, as part of the change process, that private advisors make a maximum effort to provide the entrepreneur with the technical support adjusted to their reality, for the management of their businesses in an increasingly globalized scenario.

The evaluation of investment projects today

When analyzing the specific bibliography existing on the subject (with a general approach, such as SAPAG CHAIN, N. and SAPAG CHAIN, R, 1996; SOLANET, M et al, 1991; BACA URBINA, G, 1998; or directed to a specific sector as HERNANDEZ DIAZ, E., 1994; FRANK, RG, 1998) we verify that in general terms it responds to the following characteristics:

Despite the adaptations made, they come from schemes originating in the 70s / 80s (cf. ILPES, 1988 and MUNIER, N., 1979). It is aimed at specialists, or those who wish to start in that area of study; In general, they propose models supported by methods, tools and information that are only available to large companies, especially with regard to post-project management; it has influenced professionals in such a way that, by adapting to these models, they end up with a result well-known: the informative product that is only understood by specialists; surely due to a similar influence, the different state programs (Regional Productive Dynamization, Competitive Improvement Program, etc.), despite the adaptations, are guided by said models; but, in turn,By conforming their requirements based on them, they encourage their use; Consequently, the SME entrepreneur (who generally assumes the role of investor and has only one investment option, in addition to the financial one), cannot performYour evaluation, upon receiving a product that is not suitable for your current training and without the possibility of using it as a tool for subsequent management.

The aforementioned aspects are not intended to be a critical consideration of the models and methodologies proposed by the different authors, and in use by the professional formulators and / or evaluators of projects and by most government agencies. Only attempts are made to highlight those related to the evaluation, while trying to make explicit that the information products based on these models are currently incomplete (and therefore incorrect) for regional SMEs.

It is recognized by the professional planners of our environment and by authors such as COLAIACOVO that many times the entrepreneur faces the formulation of an investment project because they require it (usually a bank or government entity), but not as a procedure and tool for making of decisions.

The aforementioned author also states that »perfectly feasible projects fail in the implementation phase because the entrepreneur does not take advantage of the information contained in the project or because he formulates wrong policies in the mentioned phase». (COLAIACOVO, JL, et al; 1995)

The entrepreneur faces the formulation of investment projects many times because they demand it.

»Perfectly feasible projects fail in the implementation phase because the entrepreneur does not take advantage of the information contained in the project or because he formulates wrong policies in the mentioned phase»

What has been expressed must be considered in a broader and more complex reality, in order to have greater precision in the situation analysis. The research recently carried out by the international consultancy Market & Opinion Research International (London) for the MAGAZINE MAGAZINE (September 1998, p. 21), reflects the entrepreneur-advisor divorce, detecting that 58% of surveyed Argentine SMEs do not seek the advice from consultants and that 70% of them do not do so because they believe that they do not need them.

The process

The process of formulating and evaluating investment projects, so that it is encompassing most of the possible situations, can be outlined according to Figure 1.

This process originates an important accumulation of information, especially on the demand, the offer, the economic and competitive structure of the market, flow of funds, which concludes in what we call »project evaluation».

The conceptual differences on the evaluation does not affect the approach, since the complete process for the different positions is similar to that described, using the same techniques and tools, and proposing the same information products.

In other words, the whole process is considered as evaluation (BACA URBINA, 1998) or the separation between the formulation process and the evaluation process (CANDIOTI, 1998) is carried out with the relevant feedback, it is always considered, as stated by SAPAG CHAIN that »the evaluation of projects aims to objectively measure certain quantitative magnitudes that result from the study of the project, and give rise to mathematical operations that allow obtaining different evaluation coefficients. This does not mean ignoring the possibility that there may be different evaluation criteria for the same project ». Expression that is ratified by the same authors when they affirm that »if the evaluation of the same project is entrusted to two different specialists, surely the result of both will be different… Furthermore,the one who evaluates the project takes a time horizon,…, without knowing the date on which the investor may wish and be in a position to carry it out… »(SAPAG CHAIN, N and SAPAG CHAIN, R; 1996)

In other words, in all this process the company and the entrepreneur are abstracted and ends in the presentation of a »tool box», fundamental for decision-making, but basically consisting of:

NPV and IRR (pure project with leverage effect) Repayment period Risk division criteria Construction of reference rates for investors Other elements of socioeconomic analysis supported by the evaluators (planners or financial, governmental organizations, etc.).

We can also add that precious information is obtained in the preparation of the project, but that it is not systematized properly so that it can be understood by the SME entrepreneur.

For his part, in a precise position, which is sufficiently demonstrative and justifying our approach, FRANK maintains that evaluation is the comparison of investment alternatives, in such a way that if there are no alternatives, there is no evaluation. (FRANK, RG; 1998).

Let us remember that the entrepreneur in our province is mostly SMEs (see Table 1), which normally has, in addition to the financial one, only one investment option and that in general it is related to its competences.

In summary: we mainly share that an investment project is evaluated to ensure its economic, technical and operational viability; that is to say, the project has its reason for being insofar as it allows an approximation, in an a priori determination, to the "success" in the implementation and operation of the original idea.

We also agree that this evaluation must also be carried out by the employer. And this is where we part. This evaluation must be carried out as a priority by the businessman (who in our region is an SME), who is responsible for the investment and subsequent management, and to whom, the recipient of our work, we must offer an informative product that is fully understood and used by him. By not systematizing the information adequately to their reality, it is prevented from being a tool for decision-making and justifies that they only choose to formulate an investment project when they are required to do so.

By not systematizing the information to the current training of the SME entrepreneur, the project is prevented from being a tool for decision making. The employer cannot carry out his own evaluation.

Therefore, there is a high degree of inefficiency in the use of resources.

Consequently, we must recognize the following limitations of the models currently proposed:

The SME entrepreneur is not assured of a feasibility approach; This entrepreneur does not evaluate the project in its economic, technical and operational aspects; It divides the investment process into two totally independent parts: the project and subsequent management; Projects are formulated and evaluated in isolation of the company as a whole; that is, it is unknown as a system whose main components are the management profile, the culture of the organization and its structure; The evaluation and feasibility, perfectly carried out by the project team, is not ratified for the stage The project becomes, consequently, an objective in itself, which ends up being a document that the SME entrepreneur, at best, simply reads and what is worse, often simply to accept.

conclusion

Absolutely recognizing the validity of the methods and techniques used, we consider that the information products that are currently provided do not serve the entrepreneur to carry out his own evaluation, which is oriented, not to estimate profitability (which is the specialist's task) but rather to determine global, among whose aspects stand out, in addition to economic viability, subsequent management, the changes it must produce in your company (especially in culture and management style), the non-economic-financial risks it assumes (commercial, social, etc.) and other psychological components.

Therefore, in our opinion, we must first redefine the purposes and purposes of an investment project, which could be determined according to the following proposal:

Investment Project Purposes

The entrepreneur makes his own evaluation; Obtain the necessary information for the structuring of the comprehensive business plan; (3)

The formation of a command board, guide to the management after the formulation of the project.

To external evaluators (government and banking entities), we believe that this redefinition would allow them to contribute more efficiently to the achievement of their objectives, by obtaining greater possibilities of success in the management of investments and them to be able to monitor it permanently.

Therefore, to that toolbox that we previously composed, we must add a set such that it allows the entrepreneur not only to evaluate the project prepared separately from his company, isolated from it, pure from business aspects (which can serve a or another company). The entrepreneur of our region needs a project (his) developed for his reality.

In general, then, the project must also provide a base command board and subsequent management guide to ensure that viability is such.

Without pretending to be exhaustive, some of those tools that we consider applicable to the generality of SMEs, could be:

Tools for an SME Model

Break-even points (for each projected situation) Minimum profitable production-sale (according to the profitability desired by the entrepreneur) Marginal analysis of the project (if the company is operating) Projected cash flows (but duly disaggregated and sensitized by the quota method or intervals)

Balances and tables of projected results

Projection of debt services (especially foreign currency) Projected market shares and other marketing indicators Total productivity and efficiency and by areas, (mainly those that make up the driving forces and that give rise to defensible competitive advantages)

Average indicators of the sector

Cultural and structural analysis (comparative).

With these instruments, plus those that each professional deems necessary (and diagrammed) according to the particularity of each company, we estimate that a harmonious project-businessman conjunction will be achieved, providing a greater degree of certainty in the feasibility of the project and, mainly, professional and businessman will fully comply with their socioeconomic obligation: the rational and efficient use of resources.

Table 1 - Participation of SMEs in the Entre Ríos economy

SOURCE: Own elaboration based on data from the 1994 National Economic Census.

	UNITS Census in %	POSITIONS JOB in %	INTERMEDIATE CONSUMPTION in %	VALUE AGRE- GROSS GRADE in %	VALUE OF PRODUCTION in %
RELATIONSHIP SMEs On TOTAL	INDUSTRY	96.97	51.33	33.25	41.57	35.44
COMMERCE	99.85	94.47	91.40	92.97	92.49
SERVICES	99.35	76.21	48.90	73.84	60.40
Total Weighted	99.43	77.46	43.67	70.36	54.65