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Quantitative risk analysis

Quantitative risk analysis the investment project assumes numerical determination of sizes of separate risks and a project risk in general. Quantitative analysis is based on probability theory, mathematical statistics, the theory of operations researches.

Two conditions are necessary for implementation of quantitative analysis of project risks: availability of the carried-out basic calculation of the project and carrying out full qualitative analysis. At qualitative analysis possible types of risks of the investment project come to light and identified, the reasons and factors influencing the level of each type of risk are also defined and described.

The problem of quantitative consists in numerical measurement of impact of changes of risky factors of the project on behavior of criteria of efficiency of the project.

The following methods of quantitative risk analysis of investment projects are put most often into practice:

  • method of correction of regulation of discount;
  • sensitivity analysis of performance indicators (the net discounted income, internal rate of return, the index of profitability, etc.)
  • method of scenarios;
  • decision trees;
  • simulation modeling - a Monte Carlo method.

The listed methods of the analysis of investment risks are based on the concept of temporary cost of money and probabilistic approaches.

The choice of a concrete method of the analysis of an investment risk according to us depends on information base, requirements to resulting effects (indicators) and to the level of reliability of planning of investments. For small projects it is possible to be limited to methods sensitivity analysis and corrections of regulation of discount, for large projects - to carry out simulation modeling and to construct distribution curves of probabilities, and in case of dependence of project deliverables on approach of certain events or adoption of certain decisions to construct also a decision tree. Methods of risk analysis should be applied in a complex, using the simplest of them at a stage of a provisional estimate, and difficult and demanding the additional information - at final justification of investments.

Results of application of various methods to the same project supplement each other.