Serov, V. M. & Tikhonov, Y. P. (2021). Methodology for the Evaluation of the Economic Effectiveness of Investment Projects. Zhurnal Economicheskoj Teorii [Russian Journal of Economic Theory], 18(3), 433-447. https://doi.org/10.31063/2073-6517/2021.18-3.8.
This article discusses the problem of evaluating the economic efficiency of investment in production capital. The article provides an overview of the theoretical and methodological framework developed by Russian scholars and practitioners. In the Soviet period, when the model of centrally planned economy prevailed, the evaluation methodology comprised the following methods: comparing the result of capital investment and its amount (calculation of the coefficient of capital investment effectiveness); comparing the coefficient’s estimated value with its normative value set for specific sectors of economy; and the category of national income (net production) being taken as the result of capital investment. The methodology was described in the officially approved document ‘Methodological Guidelines for Evaluation of the Effectiveness of Investment Projects (Second Edition)’, which corresponded to the guidelines of the research centre of the United Nations Industrial Development Organization. Our analysis brings to light certain drawbacks in the methods described in this document, more specifically, the inaccuracies in the evaluation criteria, the lack of methods for calculation of the corresponding indicators, and the shortcomings of the established indicators of economic effectiveness, in particular the main indicator -the net present value. In accordance with the established methodology, we calculate not the amount of net present value but only a part of it and the method of calculating this part boils down to testing whether the desired level of profitability is ensured or not. To improve this methodology, it is proposed to apply a combination of income- and property-based approaches. The newly generated value should be taken as the result of investment (on the national level — national income, on the level of production entities — net output). Since this approach focuses on the satisfaction of the economic interests of the government, investors and employees, apart from general effectiveness, it is recommended to differentiate between entrepreneurial, budget-related and labour-related components of effectiveness.