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 Uncertain outcome, failure, loss, hazard, threat to profit.  Projects are unique in nature and imply risk uncertainties  Risk level of a project is.

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Presentation on theme: " Uncertain outcome, failure, loss, hazard, threat to profit.  Projects are unique in nature and imply risk uncertainties  Risk level of a project is."— Presentation transcript:

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2  Uncertain outcome, failure, loss, hazard, threat to profit.  Projects are unique in nature and imply risk uncertainties  Risk level of a project is associated with the level of uncertainty about factors such as technology, time schedules, cost budgets  Risk = f ( likelihood, impact)

3  Internal – promoters, stakeholders and project managers have control over them  Market risk  Technical risks  Price risk  Project completion risk  External - promoters, stakeholders and project managers have no control over them  Political risk  Interest rate risk  Exchange rate risk

4  Risk identification  Risk Quantification (Analysis)  Risk response development ( how to handle risks)  Risk response control  Risk monitoring

5  Schedule risk  Capital cost risk  Schedule and cost risk  Economic feasibility risk  Contractual risk  Pre completion risks  Post completion risks  Financial risks  Country risks

6 Ordinal scale (example) Very lowLowModerateHighVery High Cardinal Scale (example) CostInsignificant cost increase <5% cost increase 5-10% cost increase 10-20% cost increase > 20% cost increase ScheduleInsignificant schedule slippage <5% schedule slippage 5-10% schedule slippage 10-20% schedule slippage > 20% schedule slippage ScopeScope decreases barely noticeable Minor areas of scope are affected Major areas of scope are affected Scope reduction unacceptable to the client Project end item is effectively useless QualityQlty degradation barely noticeable Only very demanding applications are affected Qlty reduction requires client approval Qlty reduction unacceptable to the client Project end item is effectively unusable

7  Avoid  Reduce  Transfer  Accept  Contingency

8 RISK ANALYSIS OF SINGLE INVESTMENTS

9 Estimation error Quality of mgmt Project Specific Unanticipated actions of competitors Competitive Unexpected Technological developments Regulatory changes Industry Specific GDP growth rate Interest Rate Inflation Market Exchange rate Political risk International

10 (Rs. ‘000)Year 0Years (1-10) Investment(20000) Sales18000 Variable 66.67% Fixed costs %2000 PBT %1000 PAT2000 CFAT4000 Discount 12%5.650 Present value22600 Net present value2600

11 Scenario Analysis  Pessimistic (worst)  Expected  Optimistic (best)


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