The use of economic and mathematical modeling to assess the effectiveness of investment and construction project management

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University of International Business

The use of economic and mathematical modeling to assess the effectiveness of investment and construction project management

Yesbol A.A.

2nd year student of the Master's degree

in the specialty "Evaluation"

Dosmanbetova M.S.

PhD, Associate Professor

Summary

economics mathematical professional assessment

Professional appraisal, as an integral part of practical management, has been recognized worldwide as a separate discipline. Nowadays existing a generally accepted international practice, which is enshrined in the standards of evaluation. Valuation standards, containing basic principles, concepts, methods, and stages of evaluation, have evolved with the development of market relations. Evaluation approaches were absorbed new methods, borrowing them from other disciplines for adapting to changes in legislation, market economy conditions. Particular importance in the development of valuation is methods of economic and mathematical modeling, which are widely used by appraisers in different countries. The use of these methods is rather laborious and timeconsuming, however, computer technology significantly reduces and simplifies the use of economic - mathematical models for evaluation.

The relevance of this work lies in the fact that the possibility of using economic and mathematical modeling in valuation is not fully studied and not an unequivocal question. Methods of economic and mathematical modeling can be used in the evaluation of any objects, which determines the practical and theoretical interest in this research topic.

Key words: valuation, economic and mathematical modeling, methods, neural networks, management.

Professional appraisal, as an integral part of practical management, has been recognized worldwide as a separate discipline. Nowadays existing a generally accepted international practice, which is enshrined in the standards of evaluation. Valuation standards, containing basic principles, concepts, methods, and stages of evaluation, have evolved with the development of market relations. Evaluation approaches were absorbed new methods, borrowing them from other disciplines for adapting to changes in legislation, market economy conditions. Particular importance in the development of valuation is methods of economic and mathematical modeling, which are widely used by appraisers in different countries. The use of these methods is rather laborious and time-consuming, however, computer technology significantly reduces and simplifies the use of economic - mathematical models for evaluation.

The relevance of this work lies in the fact that the possibility of using economic and mathematical modeling in valuation is not fully studied and not an unequivocal question. Methods of economic and mathematical modeling can be used in the evaluation of any objects, which determines the practical and theoretical interest in this research topic.

The development of market relations and restructuring of the country's economy led to fundamental changes in the investment and construction sector. One of the most significant reflections of these changes has become an intensively developing system as investment-construction project management (ICP), which has received worldwide recognition. Therefore the existing of operation market conditions in the construction industry predetermines the importance of improving the methodological support for decision-making generally in the economy and particularly in the field of ICP management.

ICP management methods aimed at finding ways to ensure an efficient investment and construction process, which are undergoing constant change. The methodology and means of managing a construction project are widely used in world practice in all areas of project- oriented activity.

In the course of its implementation, any project goes through various stages (phases), which together comprise the project life cycle. To implement the various functions of each stage of the life cycle in the process of managing the ICP, actions are needed to evaluate and to improve the effectiveness of the project as a whole. One of such methods can be considered an assessment of the effectiveness of ICP management using neural network optimization.

Many scientists were involved in studying economic and mathematical modeling in the appraisal. The use of economic and mathematical modeling methods along with other methods of evaluation were mentioned in the works of G.S. Harrison, D. Friedman. Economic and mathematical modeling methods in the evaluation are discussed in the textbooks such as J.K. Ekkert "Organization of assessment and taxation of real estate", S.V. Gribovsky "Profitable Real Estate", educational and practical manual S.A. Sivec "Statistical methods in real estate and business valuation".

Problems of improving the methods of evaluating project management effectiveness are considered in scientists works: V.M. Anypin, A.L. Vasyutinsky, V.I. Voropaev, P.G. Grabovoi, H.M.Gumba, N.P. Ivaschenko, M.I. Kamenetsky, N.L. Kardanskaya, N.B. Kosareva, N.F. Kostetsky, I.G. Lukmanova, E.P. Pankratov, M.L. Razu, V.M. Serov, V.A. Sokolsky, I.S. Stepanov, V.Z. Chernyak, T.S. Khachaturov, V.D. Shapiro and others, as well as foreign scientists R. Archibald, H.Y. Varneke, M. Cassoy, D. Keynes, D. O'Hara, M. Porter, R. Rotberg, E. Solomon, R. Foster, R. Hizrich, E. Jantsch, etc. The general issues of evaluating the effectiveness of project management was mentioned in these works, including the principles, methods of evaluating the effectiveness of ICP management.

However, the features of assessing the effectiveness of ICP management with the help of neural networks were practically not analyzed.

Despite the studies conducted in recent years in the field of assessing the effectiveness of ICP management, modern methods of assessment using neural networks remain insufficiently studied at all stages of the project life cycle, which hinders their implementation in the design and construction activities by selecting feasible project options.

Consequently, the importance of the problem of assessing the effectiveness of ICP management is caused not only by the demand and insufficient development of highly efficient forms and methods of ICP management in the national economy but also by the lack of methodological developments that allow assessing the effectiveness of ICP using neural networks throughout their implementation.

The aim of the research is to analyze the use of mathematical modeling in the assessment. The main point is developing an economic and mathematical model for evaluating the effectiveness of investment and construction projects management.

To achieve the aim, the following interrelated objectives are consistently provided:

Investigation of the features of economic and mathematical modeling methods for evaluation;

Analysis of existing evaluation methods for the effectiveness of investment and construction projects management;

Building principles and factors influencing the evaluation of the efficiency of investment and construction projects management;

Justification of the neural network possibilities to assess the effectiveness of investment and construction projects management;

Development of the neural network algorithm in order to assess the effectiveness of investment and construction projects management.

The subject of research is economic and mathematical models used in the assessment.

The object of the research is the features of evaluating the effectiveness of investment and construction projects management using an economic and mathematical model.

The methodological and theoretical base of the research is composed of the scientists work on the methods of economic and mathematical modeling, on market economics and management problems in the field of construction, the work of and leading experts work in the field of project management, investment and construction activities, as well as methodological recommendations for solving problems in development of investment and construction complex.

The scientific novelty of the research is:

The substantiation and selection of organizational, managerial and economic aspects and factors influencing the evaluation of the effectiveness of ICP management were carried out;

The ways of applying economic and mathematical modeling to assess the effectiveness of ICP management are proposed;

Systematized indicators for assessing the effectiveness of ICP management using economic and mathematical modeling;

An algorithm for constructing an economic- mathematical model for evaluating the effectiveness of ICP management was proposed.

The practical significance of the research results consists in a comprehensive analysis of the forming system indicators issues for assessing the effectiveness of project management in investment and construction activities and the possibility, based on the developed recommendations, to increase its efficiency at different stages of ICP under market economy conditions using economic and mathematical modeling.

The implementation and testing of the research results was carried out by implementing the proposed recommendations into the practical activities of the Kazakh Leading Academy of Architecture and Construction.

Economic efficiency is the basic category of the theory and practice for making management decisions about investing in the production development. The essence of this category is that it expresses economic relations and, consequently, the interests of the participants in the investment process about the relationship between results and costs emerging in this process[1, p. 190].

“Results” and “costs” are the most important concepts associated with measuring the economic efficiency of investment projects.

The results reflect the global challenges that must be solved in an investment project to achieve the main goal of economic development. The results are directly related to the goals pursued by the investor. In investment planning, we have to deal with both economic and non-economic results. Investment calculations are always focused on the achievement of certain goals that have a monetary value (income, profits, loss reduction). Non-economic results (habitat conservation, etc.) cannot be expressed in terms of value and should always be evaluated outside the framework of investment calculations. They cannot be summed up with economic estimates, but it is necessary to take into account investment decision makers[2, p. 56].

Costs, Achievement of the aims set in the project and corresponding results implies the realization of certain one-time and current costs. One-time costs spent on the purchase of equipment, vehicles, construction of buildings and structures, etc., ultimately accumulate in fixed capital, and directed to the creation of stocks of raw materials, materials, work in progress, etc. - as part of working capital [3, p. 88].

Current costs make the cost of production (services).

The difference in evaluations of results and costs creates an effect that allows one to judge what an investor will receive as a result of the project implementation.

The effect can be presented in two expressions: as the difference between the cumulative result and the cumulative cost, as the difference between the cumulative result and current costs only. This category is understood by us only in the aspect of estimating point (static) expressions of results and costs, that is, for one calendar period, for example, a year. Its use in dynamic models, i.e. when the effect is calculated as the difference between the total results obtained during the project life cycle and the total costs for the same period, is incorrect, because such a scheme does not take into account the difference in costs and results, and therefore unequal cash flow over time.

Efficiency is a synthetic category. It allows you to judge what price has achieved the goal set in the project. Most often, it is interpreted as an expression of the ratio of results and costs, but it can be interpreted as the ratio of effect and one-time costs. Such an expression of investment efficiency does not fully correspond to modern theoretical ideas about the essence of economic efficiency as an economic category. The main thing - there is no investor requirement for the ratio of results and costs. In addition, efficiency can be represented not only as a relative expression of results and costs. In dynamic models, it can be represented as the difference between the results and costs, given a comparable form in accordance with the investor's perceptions of the acceptable level of income [4, p. 34].

In any variant of the comparison of costs and results, its reliability depends crucially on the agreed and accepted methodological and methodological principles of such a comparison.

The definition of the “economic efficiency” category given at the beginning of this section is the starting point for finding out both the content and the methodology for determining the economic valuation of investments channeled into the development and implementation of investment projects. To give an economic assessment of such investments means to determine the effectiveness of a specific investment project [5, p.28].

The effectiveness of the investment project is determined to address a number of tasks: assessing the potential feasibility of the project, e., checking the conditions according to which the cumulative results exceed the costs of all types in sizes acceptable to investors;

assess the benefits of the project under consideration in comparison with alternative ones;

ranking of projects according to the adopted system of performance indicators with the aim of their subsequent inclusion in the investment program in the context of limited financial and other resources.

The above categories are widely used in assessing the economic efficiency of investments, whether they are investment projects, i.e. projects for creating business objects, or investing in financial assets, i.e., various kinds of securities, which in principle can also be viewed as a project [6, p. 103].

In modern practice uses a number of different methods of assessing economic efficiency. This results from the fact that there is no any universal method which would be suitable for any situation.

The methodological basis for determining economic efficiency is the correlation of the results obtained with the costs or with the resources used to achieve these results. The most accurate estimate can be obtained by discounting.

The advantage of discounting is that it is this method that takes into account, in addition to the correlation of costs and revenues in absolute terms, the time aspect. Cash received or spent in different periods of time has a different value. Comparability is achieved by reducing (discounting) investments and receipts made at different points in time to the same base point. The base point in time can be: the start date of the project, the start date of production, or a notional date, close to the time of the project performance calculations.

In the process of comparing the value of money, the following concepts are used: the future value of money, the present value of money, the present value of money.

The present value of money is their nominal amount at the actual (current) moment of their cost or receipt.

The future value of money is the amount in which the nominal amount of money received or spent over time will be converted in accordance with the accepted discount rate.

The present value of money is their nominal amount, reduced to a specific time date or time period for the implementation of an investment project in accordance with a discount rate.

When calculating the economic efficiency of investment projects, the value of investments and cash receipts, as a rule, is given to the date of commencement of their implementation.

When using the discounting method, the correct choice of the value of the discount rate is quite important. At the same time, they are guided by the existing or expected average level of loan or deposit interest on bank deposits, returns on shares, bonds and other government and commercial securities.

The discount rate largely depends on the socio-political situation in the country, the development prospects of the country or region, the level of inflation and investment-related risk, the world market situation and many other factors; therefore, its definition is the subject of serious research and forecasts.

Based on the principle of discounting, calculations are based to determine the net discounted income (i.e. the amount of profit calculated taking into account the time of receipt of payments), the discounted payback period, as well as the internal rate of return - the main indicators of economic efficiency of investments.

The economic evaluation of the effectiveness of investment projects is central to the process of justifying and choosing possible options for investing money and other capital to increase them. With all the other favorable characteristics of the projects (increasing the number of jobs and employment, increasing the degree of development of the territory, improving the environmental situation, etc.), they will not be accepted for implementation unless they provide:

reimbursement of invested sums of money and other capital as a result of the creation of new enterprises, industries or their modernization, technical reequipment and sales of goods, products and services produced on them;

making a profit that ensures the profitability of investments is not lower than the level desirable for investors;

return on investment within the period acceptable to the investor.

Determining the possibility of achieving the above economic results in the implementation of real investment and is the main task of evaluating any specific investment project.

It should be noted that a comprehensive assessment of the effectiveness of ICP management can be carried out only with the assessment of the economic, budgetary and environmental performance of the investment project:

economic efficiency of investments takes into account in value terms all types of results and costs associated with the implementation of investment projects. The definition of financial efficiency is based only on financial indicators of investments, i.e. determines the effectiveness of the investment project from financial investments;

budgetary efficiency of investment projects reflects the financial consequences of their implementation for the federal territorial or local budget. Budget revenues from the implementation of the investment project consist of tax revenues of established or expanding enterprises (value-added tax, property, income, income tax, etc.), fees for their use of natural resources, customs duties and fees, excise taxes on certain type goods, share premiums from issuing securities, etc. The budget revenues also include revenues to extra-budgetary funds: pension, employment, medical and social insurance, road fund, etc.;

- environmental efficiency reflects the impact of investment projects on the improvement of the environment (reduction of harmful emissions into the atmosphere, water, noise reduction, etc.).

Evaluation of the effectiveness of investments and projects, as well as the upcoming costs and benefits is carried out within the billing period, called the calculation horizon. The duration of the calculation horizon is taken taking into account: the duration of the creation, operation and (if necessary) liquidation of the facility, the weighted average regulatory life of the main technological equipment, the achievement of the specified profit characteristics (mass or rate of return, etc.), investor requirements [7, p. 88-90].

The effectiveness of the project as a whole is estimated to present the project and determine in this connection its attractiveness to potential investors [8, p. 8890].

At present, the following types of efficiency of investment projects can be considered generally recognized (Figure 1).

Figure 1. Types of investment project efficiency

In the last decade, a new applied field of mathematics, specializing in artificial neural networks, is finding an ever wider application in science and practice. The relevance of research in this direction is confirmed by the mass of various options for the use of neural networks. It is an automation of pattern recognition processes, adaptive control, approximation of functionals, forecasting, creation of expert systems, organization of associative memory, and many other applications.

A wide range of tasks solved by the National Assembly does not allow to create universal, powerful networks at the present time, forcing to develop specialized National Assembly systems that function according to different algorithms, thereby solving various problems. NA models can be software and hardware versions. In the future we will focus mainly on the first type.

In the construction industry, neural networks can be used to determine functional dependencies between factors that directly affect construction and factors that have an indirect effect on a project. Neural networks allow analysis of the impact on the project of various subjective factors; as a result, the opportunity arises:

take into account the specific requirements of investors in the performance indicator;

summarize the assessment of various solutions provided by the project;

take into account the entire period of the investment, which lies outside the billing period;

take into account the uneven receipt of cash inflows and outflows of funds;

take into account the non-economic consequences of the project, which can not be taken into account in the cash flows;

take into account the risk component of projects, as well as specific requirements when comparing projects that can not be assessed in cash flows;

take into account the effect of uncertainty and risks accompanying the project implementation by indirect methods;

determine the preferences of one of a number of performance indicators when sharing them for project evaluation;

take into account the specific economic and noneconomic interests of the project participants.

Also, the method can be used to solve optimization problems. An example of solving an optimization problem using neural networks is scheduling that optimizes the cost of a project. A significant drawback of the neural network optimization method is the need for a large amount of information material on the construction projects implemented in practice for network integration and testing. In addition, neural networks are not universal and require the development of a model for each specific task. Various methods and indicators can be combined by building neural networks. Neural networks can also be used to generate changes in the weather and to study its effect on performance.

To assess the effectiveness of ICP by building neural networks, various types of efficiency can be combined, which have a direct impact on the definition of the project class.

In the case of combining different types of efficiency in assessing ICP, the results are more accurate due to the fact that taking into account the influence of a large number of factors that simultaneously affect the definition of the project class. So, on the presented scheme, the assessment of the project class directly depends on:

consequences of the project for the owner of the invested capital (commercial efficiency);

the impact on the financial performance of the business entity implementing the investment project (financial efficiency);

financial implications of the project for the federal budget, the budget of the subject of the federation and the municipality (budgetary efficiency);

the implications of the project for the national economy, the economic feasibility of investing funds in the project in quantitative terms, taking into account the cost measurements of all the results and costs (economic efficiency);

the ratio of the results of the project with the use of a certain type of production resource (resource efficiency);

social results of the project implementation (social efficiency);

the impact of the project on the environment (environmental performance).

In turn, all the above types of efficiency, based on their direct calculation, proceed from the principles for performance evaluation, which, on the one hand, are partially taken into account by existing methods for performance evaluation, and on the other hand, they are not taken into account by existing methods. However, all listed principles for evaluating the effectiveness of ICP are taken into account by the method of neural network optimization.

Thus, when evaluating the effectiveness of projects, it becomes necessary to take into account indicators of various types of efficiency, while the magnitude of the influence of each of the indicators on the evaluation of the effectiveness of ICP is not clear. However, when applying the neural network optimization method, thanks to the possibility of conducting training using the available data on already implemented similar projects, it becomes possible to automatically determine the magnitude of the effect of various indicators on the effectiveness of ICP.

As a result of the study, it was revealed that the presented method for assessing the effectiveness of ICP using neural networks, in contrast to the already existing methods, has a number of advantages:

first, it can combine all previously known methods and accumulate the results;

secondly, this method allows for a comprehensive assessment of the effectiveness of ICP, for all indicators of interest;

thirdly, it makes it possible to rationally take into account the degree of influence of subjective factors on the evaluation of the effectiveness of ICP.

Evaluating the effectiveness of investment projects using the neural network optimization method can be widely applied in practice during tenders and tenders, as well as during the evaluation of the effectiveness of the implementation of ICP based on the existing business plan due to the fact that it adapts to any requirements that may arise during the assessment.

The construction of neural networks can be carried out using the algorithm presented below to assess the effectiveness of ICP management.

One of the possible variants of the program algorithm. Its main stages are:

Statement of the problem of evaluating the effectiveness of ICP management. The purpose of the program to assess the effectiveness of ICP management is constant (unchanged) and variable indicators. The choice of constraints, state parameters and criterion assessments (objective function).

Preparation of sufficiently complete data from a training set for training and testing a neural network - calculating the parameters for evaluating the efficiency of ICP control by a computational program for values of varying parameters covering the search area for the optimal solution. The input parameters of the neural network are the variable parameters of indicators for assessing the effectiveness of ICP management. The output parameters of the neural network are the parameters of the state of the ICP. (Dynamics of production volumes, construction time, indicators of sustainability of production, availability of orders, security of financial and industrial stocks, dynamics and structure of the number of employees, labor productivity, net present value, equipment prices, materials prices, product sales price, inflation, time payback, profitability, project life cycle and project risk accounting.).

Training of the neural network based on the neural network program according to the prepared training sample. Testing the neural network on a number of solutions obtained by the traditional computing program and added to the training set.

Steps 4-5 loop in: first, the search is performed on a sparse grid, then on a thicker one, until the accuracy sufficient for this iteration is reached.

Assessment of the model of the effectiveness of ICP management and its change, if necessary (clarification of the variable parameters, state parameters and criterial estimates).

Steps 2-6 loop through to form a sequence of iterations, each of which performs additional calculations according to the traditional program, and the neural network model rests on the results of these calculations.

Control of the obtained solution of the problem (calculation of the model for assessing the effectiveness of the management of the ICP with the parameters found using a traditional computing program).

Conclusion of the results of solving the task of evaluating management effectiveness ICP.

Conclusion: The method of neural network optimization makes it possible to make an assessment and ranking of ICP on any criteria of interest, as a result of which the decision-making time for assessing the economic efficiency of ICP is significantly reduced. Due to the possibility of choosing any number and type of variables, ICP assessment can be carried out with maximum accuracy, the method of neural network optimization is fully adjusted to individual requirements and features during the evaluation or analysis of the effectiveness of ICP. It is advisable to use the neural network optimization method in investment companies or state corporations carrying out many investment projects to make the choice of the most efficient project. As a result of the application of the efficiency assessment method set forth in the dissertation work, it is possible to exercise control over the decision-making on the allocation of funding for ICP.

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