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Analysis of Risk

External and Internal


Environmental analysis
Sensitivity Analysis is to measure the
degree of sensitivity of the output
with respect to the change in Input
cost
Sensitivity Analysis can be done in
NPV and IRR as well
Year 0 Year 1 Year 2 Year 3
Year 4 Year 5
-80000 20000 21600 23328
25194 27210
At cost of capital 13.23% NPV is Rs
533
At Cost of capital 14.23% NPV is Rs
423
Risk adjustment with
sensitivity for risk based
ranking
Project A Pr B Pr C
Strategic Score 76 78 67
NPV 345 654 190

Total 421 732 257


(Without any
risk
adjustment)
Risk adjustment with
sensitivity
(risk based ranking score at
worst
Project A
scenario)
Pr B Pr C
Strategic Score 76 78 67
NPV Average 345 654 190
NPV low end 275 454 90
Npv high end 425 884 280
spread 150 430 190
Total SCore 351(76+275) 532 157
NPV less spread for risk
survival ranking
Project A Pr B Pr C

NPV 345 654 190


spread 150 430 190

NPV less spread 195 224 0


Indicative of
survival in risk
Lower the score lower the capacity to
absorb the risk
NPV less % of spread
Project A Pr B Pr C

NPV 345 654 190


spread 150 430 190
Investment 6000 7000 7600
Spread/inv .025 .061 .025
2.5% 6.1% 2.5%
Risk survival ranking using
NPV less % of spread
Project A Pr B Pr C

NPV 345 654 190


spread 150 430 190
Investment 6000 7000 7600
Spread/inv .025 .061 .025
2.5% 6.1% 2.5%
Higher the %
higher the risk
Sensitivity Analysis can be done in
NPV and IRR as well
Criteria:
What is the fluctuation of the NPV with
change in cost of capital
What is the fluctuation of NPV with change
in interest rate
What is fluctuation of NPV with change in
cost of equity
etc
Risk register
Project Risk Key risk mitigation remarks
ranking source
score
A
D
G
F
E
B
C
PERT Calculation Sheet
9.1

9.1
C

6
E
6 3.1
A
7
6
0
F
0 D 16.1 18.1

B 16.1 18.1
4.3 2
4.3 7.8
8.3

- 3.5 S
How to use pert diagram in risk
management?
We can identify high risk
activities(having high variance)
We can identify routes with high variance
We can allocate buffer for high risk
activities
We can allocate route managers for high
risk paths as per pert diagram
Risk Mitigation
How to respond to risk?
- Minimize the likelihood of risk event
- Minimizing the chance of damage
Risk mitigation
A.Minimize the likelihood of risk event
- Relationship with suppliers and
stakeholders
- Proactive management
RISK MITIGATION
B.Minimize the damage
Analyze the risk during planning
Continuous monitoring
Plan for the back up
Transferring risk
Sharing the risk