Project Risk Management

Topics: Risk management, Finance, Risk Pages: 7 (2270 words) Published: March 15, 2011
Risk ( the effect of uncertainty on objectives, whether positive or negative) the probability of unfortunate events . Risks can come from uncertainty in financial markets, project failures, legal liabilities, credit risk, accidents, natural causes and disasters as well as deliberate attacks from an adversary. Project finance is different from traditional forms of finance because the financier principally looks to the assets and revenue of the project in order to secure and service the loan. In contrast to an ordinary borrowing situation, in a project financing the financier usually has little or no recourse to the non-project assets of the borrower or the sponsors of the project. In this situation, the credit risk associated with the borrower is not as important as in an ordinary loan transaction; most important is the identification, analysis, allocation and management of every risk associated with the project, which may be : 1.Market Risks

2.Technical Risks
3.Financial Risks
4.Economic and political Risks
5.Ecological Risks.
Out of above five risk segments, major risks are :
Human: individuals or organizations, illness, death, etc.
Operational – from disruption to supplies and operations, loss of access to essential assets, failures in distribution, etc. Reputational – from loss of business partner or employee confidence, or damage to reputation in the market. Procedural – from failures of accountability, internal systems and controls, organization, fraud, etc. Project inherent :risks of cost over-runs, jobs taking too long, of insufficient product or service quality, etc. Financial – from business failure, stock market, interest rates, unemployment, etc. Technical – from advances in technology, technical failure, etc. Natural – threats from weather, natural disaster, accident,

Project Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability of unfortunate events or to maximize the realization of opportunities. Risks can come from uncertainty in financial markets, project failures, legal liabilities, credit risk, accidents, natural causes and disasters as well as deliberate attacks from an adversary. Some time Intangible risk identifies a new type of a risk that has a 100% probability of occurring but is ignored by the organization due to a lack of identification ability. For example, when deficient knowledge is applied to a situation, a knowledge,risk materializes. Relationship risk appears when ineffective collaboration occurs. Process-engagement risk may be an issue when ineffective operational procedures are applied. These risks directly reduce the productivity of knowledge workers, decrease cost effectiveness, profitability, service, quality, reputation, brand value, and earnings quality. Intangible risk management allows risk management to create immediate value from the identification and reduction of risks that reduce productivity The strategies to manage risk include transferring the risk to another party, avoiding the risk, reducing the negative effect of the risk, and accepting some or all of the consequences of a particular risk. Minimization of Risks:

1.Identify, characterize, and assess threats
2.Assess the vulnerability of critical assets to specific threats 3.Determine the risk (i.e. the expected consequences of specific types of attacks on specific assets) 4.Identify ways to reduce those risks

5.Prioritize risk reduction measures based on a strategy

Project finance is the financing of long-term infrastructure and industrial projects based upon a complex financial structure. Project financing plays a pivotal role in development of any economy/ sector. It is a technique of employing a carefully engineered financing mix. A judicious combination of debt and equity needs to be used to finance the project, and debt...
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