ABSTRACT
Estimated costs and financial benefits of a project are based on data available at the time of initial budget. However, values of these costs and financial benefits are often at variance from subsequent actual figures. This is mostly due to occurrence of some unexpected events (uncertainty and consequent risks). Possibility of such uncertainty and risk does exist in every project. Analysis of such uncertainty and risk is discussed in this chapter, including benefits of such analysis. Major factors contributing to risk are inaccuracy and unavailability of the input data or past history of the enterprise as well as the projected future economic conditions (e.g., interest rates, inflation etc.) and assessment of the risk involved in the process. Also, the type of plants and equipment involved in the project contributes to uncertainty and risk. Multipurpose equipment may be very useful in the workshop, while special equipment would have restricted use. This aspect needs careful study while examining the investment strategy. Also, long study period will increase the probability of uncertainty and risk in the investment. Lastly, qualitative risk analysis methods (such as probability and impact matrix, brainstorming, Delphi method) and also quantitative sensitivity analysis are discussed.
