An investment project is an allocation of resources with the expectation of a profitable return on the allocation in the future. The return is typically anticipated more than a year in the future. An allocation of resources that produces returns that benefit the current year are merely expenditures for operating expenses. One of the basic elements of an investment project is the fact that the investment is tied up for the long-term, rather than the short-term.
When a person has excess resources, such as money, he typically wants to do something with those resources so they can be as useful to him as possible. Ideally, most of a person's excess should be correctly used to generate the most benefits. For example, if a person has a vacation home that he can rent during the weeks when he is not using it, that would often be a better allocation of excess resources than letting the house sit empty. Renting the house generates money, or a return on the investment made in the property, that goes beyond the owner's enjoyment when he is there.
Investors do not necessarily have to choose the use for excess resources that generates the highest return. Some investors have different priorities and may need their excess resources to be immediately accessible, for instance, rather than generating the most money. An investment project, however, is an option to allocate excess resources for the long-term, with the expectation that the investment will remain with the project until it reaches a stable income-generating stage and can pay back investors.
These types of projects are evaluated based on viability. A viable investment project will offer an attractive rate of interest that makes the loan of the money worthwhile to the investor and return interest and principal to the investor in a timely manner. The suitability of a project will often depend on its ability to consistently generate positive cash flows to meet these obligations.
In some instances, the return on an allocation of resources to an investment project is in benefits, rather than money. For example, an ordinary investment project is an investment in real estate. The property is evaluated based on the rents it can generate, and the return on the investment is expected in the form of money. An investment in a person's education or training, conversely, produces a benefit, rather than a direct return of cash. This type of investment project into human resources is designed to have different sorts of returns that address an investor's non-monetary goals and objectives.
