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Qualitative risk analysis

Qualitative risk analysis allows to reveal and identify possible types of the risks peculiar to the project, the reasons and factors, influencing the level of this type of risk are also defined and described. Besides, it is necessary to describe and give a cost assessment of all possible consequences of hypothetical realization of the revealed risks and to offer actions for minimization and/or compensation of these consequences, having calculated cost assessment of these actions.

The first step in carrying out qualitative risk analysis is accurate determination (identification, the description - "inventory") all possible risks of the investment project. In this direction the offered classification of investment risks can render the substantial practical assistance.

Consideration of each type of an investment risk can be made from three positions:
1. in terms of sources, the causes of this type of risk;
2. discussions of the hypothetical negative consequences caused by possible realization of this risk;
3. discussions of the concrete actions allowing to minimize the considered risk.

The main results of qualitative risk analysis are: identification of specific risks of the investment project and the reasons generating them, the analysis and cost an equivalent of hypothetical consequences of possible realization of noted risks, the offer of actions for minimization of damage and their cost assessment. To additional, but also very significant results of qualitative analysis, it is necessary to refer determination of boundary values of possible change of all factors (variables) of the project checked for risk.

Stages of qualitative risk analysis:
1. identification (determination) of possible risks;
2. the description of possible consequences (damage) of realization of the found risks and their cost assessment;
3. the description of the possible actions directed to reduction of negative impact of the revealed risks with indication of their cost;
4. researches at the qualitative level of a possibility of risk management of the investment project:
- risk diversification;
- evasion from risks;
- compensation of risks;
- localization of risks.

Qualitative analysis of investment risks is carried out at a stage of development of the business plan, and obligatory complex examination of the investment project allows to prepare extensive information to start work on risk analysis.

In the course of qualitative risk analysis we investigate the causes of risks and factors promoting their dynamics, then we give the description perhaps of damage from manifestation of risks and their cost assessment. As calculations of efficiency of the project are based on creation of its cash flows which size can change as a result of realization of each of noted risks, the quantitative assessment of the consequences performed on this step, expressed in cost indicators is important for the analyst. Besides, assessment of the actions assumed on the following step directed to reduction of negative impact of the revealed risks is also important for the analyst. We have to choose correctly the methods allowing to reduce investment risks as the correct risk management will allow us to minimize losses which can arise at project implementation and reduce the general riskiness of the project.

Methods of expert evaluation include a complex logical and the mathematico-statistical techniques and procedures connected with activity of the expert in processing necessary for the analysis and decision making of information. Central "figure" of the expert procedure is the expert - it is the specialist using the capabilities (knowledge, ability, experience, an intuition, etc.) for finding of the most effective solution.

The experts involved to risks assessment have to:

  • to have access to all available developer of project information;
  • to have the sufficient level of creativity of thinking and necessary knowledge in the corresponding subject domain;
  • to be free from personal preferences concerning the project (not to lobby it).

It is possible to allocate the following main methods of expert evaluations applied to risk analysis:

  • Questionnaires
  • SWOT analysis
  • Rose and spiral of risks
  • Project stage risk assessment
  • Delphi method