Projects must be understood as investments. It’s not enough to say that a project is like an investment. A project is an investment, strictly speaking. We can therefore understand the four characteristics of investments in the project context.
The Four Characteristics in the Project Context
In the world of projects, the asset isn’t purchased directly—it’s created by the project. The asset is exactly the result of the project. The purpose of the project is to create the asset. The asset is exactly the project scope.
And what are the costs associated with creating the asset? First, we have the direct cost—the price to be paid. This is exactly the project cost. And, of course, we have opportunity costs. The decision to undertake a particular project is simultaneously the decision to not use those same funds to undertake any other project. And so we forego the investing in all other projects.
And what is the return on the investment? This is the reason the asset is being created. It is the presumed future benefit of the asset, the presumed future benefit of the scope of the project.
But this scope is being created speculatively without any real certainty that it will deliver the desired benefits, which brings us to the fourth characteristic of any investment—risk. This is just the nature of investing, the uncertainty around the hoped-for return.
So, considering the project as an investment, we can see that:
- The asset is the project scope
- The price paid is the project cost
- The return is the presumed benefit of the project scope
- A project has all the same investment risks that any investment might have
