Goals/Choosing Project





- Abackwardintegrationthatcalculateswhatdownsidepotentialwould
cause the project not to be approved. The likelihood of that downside occurring can then be examined. This third method, although more time consuming, can be the most effective way of determining the real risks and making the decision as to whether to accept them. Common ways to perform this method: Market risk. Lower the volume and the price until the project is no longer profitable. If these numbers are feasible then the risk to the project is high. If they are out of the question, than the project risk is low. Capitalcost. Raisethecapital until theproject is no longerprofitable. Often, this number may be so highthattheprojectisdeemedtobe insensitive to capital. Schedule. Examinethemarketrequirements. Is thereadropdeaddate beyond which the customer will no longer take the new product? Is there a completion date that makes the project unprofitable? Technology. What are the non-performance scenarios? Is thereadrop dead performance issue? Environmental projects often have legal performance criteria. Profit-adding projects are based on meeting performance in volume,quality,and/orcost.Whatistheimpactofnot meeting a criteria? Can the performance be short of meeting the criteria and still be profitable? The sensitivity analysis gives the impact of not meeting the assumptions. The next As in the analysis determines the likelihood of the unprofitable event occurring. sensitivityanalysis,thecombinedknowledgeoftheintegratedteamandtheir assistants will be required to effectively answer the question of likelihood. Although it is not possible to cover every known risk possibility, here are some of the most common questions an integrated team should consider when doing a risk analysis: Market forecast:

- How good is the customer’s commitment to buying the product
volumes needed?

in the

Arecontracts in place?

- Has customer shared risk analysis with us? - What is the expected life of the product? - Whatarethecompetitiveproducts?

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