It may consist of a new product. new organisation. . new business or a new process.A project simply refers to any investment opportunity which is to be exploited for profit. Project is an idea or plan which is intended to be carried out. new service.

A project requires team work. v. ii. maturity and decay. iii. It is a risky venture. It has a life cycle reflected by growth . iv. vi. It has a fixed set of objectives. Every project has risk and uncertainty associated with it.i. . A project involves investment of money and money·s worth.

In general.Every investment is characterised by return and risk. . it refers to the possibility of incurring a loss in a financial transaction.

Risk arises where there is a possibility of variation between expectations and realizations with regard to an investment. Total risk = systematic risk+ unsystematic risk .This possibility of variation of the actual return from the expected return is termed risk.

Systematic risk is further subdivided into  Interest rate risk  Market risk  Purchasing power risk . political and social changes is system-wide and that portion of total variability in security returns caused by such system-wide factors is referred to as systematic risk.The impact of economic.

.The returns from a security may sometimes vary because of certain factors affecting only the company issuing such security. it is known as unsystematic risk. Eg: labour strike. management inefficiency When variability of return occurs because of such firm-specific factors.

A project that is delayed will result in time over-run which will consequently result in cost over-run. There can be also technology failures.Completing the project in time and within the estimated cost itself is a major achievement. . which may result in non-completion of project.

Shortage of raw material may lead to reduction in capacity utilization and higher cost of production. are the resources used by a project.Raw material. power. . manpower etc. fuel. which will make all profitability estimates wrong..

Unforeseen happenings such as Government·s intentions in price fixation. ability of competitors to offer their product to customers at a comparatively cheaper price etc. .. are likely to have an effect.Price fluctuations of both inputs and outputs affect the project.

Fluctuations in interest may bring in an adverse effect. If the interest rate increases in future. the interest on working capital finance increases which will result in lower profit margins than estimated at the time of project appraisal. .

.Technology risk may appear in two forms. Rapid growth in technology may make a project obsolete in technology due to the evolution of latest technology. A project that is based on unproven technology may have hidden defects which may make the project a non-starter.

regulating monopolistic trade practices. controlling foreign exchange transactions. prohibiting export of certain commodities. issuing import licenses.The Government intervenes in many forms such as levying and regulating taxes. imposing import duties. Political risk is a major risk since it cannot be predicted easily. promoting exports. price controls etc. .

. the firm is exposed to exchange rate risk. Firms exposed to international economy face this risk.Exchange rate risk also called currency risk. Volatile exchange rates can reduce cost and productivity advantages gained over years of hard work. When a firm has already committed to a foreign currency denominated transaction. It is the risk arising from currency fluctuations.

Sign up to vote on this title
UsefulNot useful