Lecture No46-1

Lecture No46-1 - MethodsofDescribing ProjectRisk Lecture...

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Methods of Describing  Project Risk Lecture No. 46 Chapter 12 Contemporary Engineering Economics Copyright © 2006
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Chapter Opening Story – Oil  Forecasts Are a Roll of the Dice Suppose that your proposed project depends on the price of oil (common to airline industry, UPS, FedEx, and any petroleum- based manufacturing industry). How would you factor the fluctuation and uncertainty into the analysis?
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Origins of Project Risk Risk : the potential for loss Project Risk : variability in a project’s NPW Risk Analysis : The assignment of probabilities to the various outcomes of an investment project
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Methods of Describing Project Risk Sensitivity Analysis : a procedure of identifying the project variables which, when varied, have the greatest effect on project acceptability. Break-Even Analysis : a procedure of identifying the value of a particular project variable that causes the project to exactly break even. Scenario Analysis : a procedure of comparing a “base case” to one or more additional scenarios, such as best and worst cases, to identify the extreme and most likely project outcomes.
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Sensitivity Analysis – Example 12.1 Transmission- Housing Project by Boston Metal Company Financial Facts: Known with Great Confidence
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Lecture No46-1 - MethodsofDescribing ProjectRisk Lecture...

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