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)

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

Risk identificationRisk Quantification (Analysis)Risk response development ( how to

handle risks)Risk response controlRisk monitoring

Schedule riskCapital cost riskSchedule and cost riskEconomic feasibility riskContractual riskPre completion risksPost completion risksFinancial risksCountry risks

Ordinal scale (example)

Very low Low Moderate High Very High

Cardinal Scale (example)

0.05 0.1 0.2 0.4 0.8

Cost Insignificant cost increase

<5% cost increase

5-10% cost increase

10-20% cost increase

> 20% cost increase

Schedule Insignificant schedule slippage

<5% schedule slippage

5-10% schedule slippage

10-20% schedule slippage

> 20% schedule slippage

Scope Scope 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

Quality Qlty 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

AvoidReduceTransferAcceptContingency

RISK ANALYSIS OF SINGLE INVESTMENTS

(Rs. ‘000) Year 0 Years (1-10)

Investment (20000)

Sales 18000

Variable Costs @ 66.67%

12000

Fixed costs 1000

Depreciation @ 10%

2000

PBT 3000

Tax @ 33.34% 1000

PAT 2000

CFAT 4000

Discount rate @ 12%

5.650

Present value 22600

Net present value 2600

Scenario AnalysisPessimistic (worst)Expected Optimistic (best)