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    Infrastructure Project Finance Risk Assessment: Mona Iyer Faculty, School of Planning CEPT University Ahmedabad

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    Saurabh Suman
    This document discusses various risk assessment methods for infrastructure project finance, including conventional methods like payback period, risk-adjusted discount rate, and certainty coefficient. It then focuses on sensitivity analysis, scenario analysis, and statistical techniques. Sensitivity analysis identifies important variables, simulates forecasts by changing variables, and examines how sensitive project NPV and IRR are to each variable. Scenario analysis considers interrelationships between variables without calculations. Statistical techniques assign subjective probabilities to optimistic, expected, and pessimistic cash flow scenarios.

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    Infrastructure Project Finance Risk Assessment: Mona Iyer Faculty, School of Planning CEPT University Ahmedabad

    Uploaded by

    Saurabh Suman
    94 views7 pages
    This document discusses various risk assessment methods for infrastructure project finance, including conventional methods like payback period, risk-adjusted discount rate, and certainty coefficient. It then focuses on sensitivity analysis, scenario analysis, and statistical techniques. Sensitivity analysis identifies important variables, simulates forecasts by changing variables, and examines how sensitive project NPV and IRR are to each variable. Scenario analysis considers interrelationships between variables without calculations. Statistical techniques assign subjective probabilities to optimistic, expected, and pessimistic cash flow scenarios.

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    Session8 Risks+Stats

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    This document discusses various risk assessment methods for infrastructure project finance, including conventional methods like payback period, risk-adjusted discount rate, and certainty coefficient. It then focuses on sensitivity analysis, scenario analysis, and statistical techniques. Sensitivity analysis identifies important variables, simulates forecasts by changing variables, and examines how sensitive project NPV and IRR are to each variable. Scenario analysis considers interrelationships between variables without calculations. Statistical techniques assign subjective probabilities to optimistic, expected, and pessimistic cash flow scenarios.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    94 views7 pages

    Infrastructure Project Finance Risk Assessment: Mona Iyer Faculty, School of Planning CEPT University Ahmedabad

    Uploaded by

    Saurabh Suman
    This document discusses various risk assessment methods for infrastructure project finance, including conventional methods like payback period, risk-adjusted discount rate, and certainty coefficient. It then focuses on sensitivity analysis, scenario analysis, and statistical techniques. Sensitivity analysis identifies important variables, simulates forecasts by changing variables, and examines how sensitive project NPV and IRR are to each variable. Scenario analysis considers interrelationships between variables without calculations. Statistical techniques assign subjective probabilities to optimistic, expected, and pessimistic cash flow scenarios.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 7

    Infrastructure Project Finance

    Risk Assessment

    Mona Iyer
    Faculty, School of Planning
    CEPT University
    Ahmedabad
    Risk Assessment
    • Conventional Methods
    – Pay Back
    – Risk Adjusted Discount Rate
    – Certainty Coefficient
    • Sensitivity Analysis
    • Scenario Analysis
    • Statistical Methods
    Sensitivity Analysis
    • Forecasted cashflows depend on expected
    revenues and costs
    • Revenue
    – function of various variables eg. Road project- volume
    of traffic, toll rates, project duration
    – Also, traffic is likely to depend on overall development
    of region and importance of particular road over time.
    • Cost
    – generally function of variable unit rates
    • Reliability of project NPV and IRR depends on
    reliability of variables
    Sensitivity Analysis
    • Identify the important variables
    • Simulate forecasts by changing one variable at a
    time at least for three values i.e pessimistic, expected
    and optimistic
    • Recalculate/simulate NPV, IRR
    • This method of recalculating /simulating NPV, IRR
    is called sensitivity analysis
    • Gives an idea about sensitivity of project
    (investment and returns ) towards given variable
    • Higher sensitivity indicates more critical variable
    • Thus this method examines sensitivity of project to
    particular variable rather than quantifying risks
    Sensitivity Analysis
    Pros:
    • Forces the decision maker to identify all possible variables
    that affect project revenues and costs.
    • Indicates the critical variables for which the decision maker
    should seek additional information and be more careful
    • Guides the decision maker to concentrate on relevant
    variables
    Cons:
    • Optimistic and pessimistic may have different meaning for
    different group of people/decision makers
    • Does not focus precisely on interrelationship between
    variables (assumes that variables are almost independent)
    Scenario Analysis
    • Considers the interrelationship of variables
    (generally without any mathematical
    calculations.)
    • Helps to analyze the impact of combination
    of variables
    Statistical Techniques
    • Probability
    – Objective probability: Based on observation of past
    data and trends, repetitive occurrence over period of
    time
    – Investment decision do not have trends to follow and
    are non-repetitive
    – Hence subjective probability -Personal opinion about
    likelihood of the event to occur
    – Generally assigning probability to optimistic, expected
    and pessimistic CASHFLOWS/scenario cashflows

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