➢ Knowledge + Understand the basic knowledge about risk analysis and the risk analysis methods of the project. + Know how to evaluate and estimate the potential risks of the project, thereby helping to improve the ability to choose a good project and reject a bad one. ➢ Skills: + Use Excel software to support calculations + Solve real project situations.
1 CONTENT OF CHAPTER 9 QUANTITATIVE RISK ANALYSIS 9.1. Concept of investment project risk - Concept of risk - The necessity of risk analysis for project appraisal
9.2. Risk analysis methods
- Deterministic method - Simulation method
2 9.1. Concept and difference of quantitative risk with qualitative risk 9.1.1 Concept of risk in project appraisal Risk is an uncertain event or condition that when it occurs will positively or negatively affect one or more components of the project such as objectives, plans, costs or quality (Project Management Institute of the United States) Risk is an uncertain issue, it can affect the components of the project in a negative or positive way (According to Caltrans (Transportation Association of California - USA) Thus, the risk of the project has the following characteristics: . Uncertainty: it may or may not happen. . Positive or negative: any future event that may occur affecting the project is also considered a risk.
3 9.1.2. Concept of risk analysis Risk analysis for the project is the work of using different analysis techniques to identify factors that can affect the feasibility of the project and evaluate the feasibility of the project based on the variability of input variables. 9.1.3. The necessity of risk analysis for project appraisal - The benefits and costs of the project extend over its operating time and depend heavily on external factors. Therefore, cash flow estimates (excluding inflation) are hard to avoid errors and unwanted changes - Financial risk analysis helps identify risk-prone factors for focused management, improve accurate estimation because collecting information and data widely to limit all risks is costly and time-consuming.
4 9.2. Risk analysis methods pp tat dinh 9.2.1. Deterministic analysis: (deterministic) As an analyst, you will subjectively determine the values of each variable and find the output from the financial model. There are two main methods: sensitivity analysis and scenario analysis. ✓ Sensitivity Analysis: - Concept: Consider the change of the outcome variables corresponding to the change of one or a pair of input variables through their determined values. - Role: Allows to consider the sensitivity of the project to changes in input variables. Look at the change in the project's results corresponding to the change in the value of each input variable. From there, assess the sensitivity of the project to each input variable.
5 ✓Method: Sensitivity analysis is performed by two main methods: one- way and two-way sensitivity analysis. 1 bien so thay doi se anh huong cac thong - One-way sensitivity analysis method: so nhu the nao Analyze the impact of changes in each input variable on the project's results. Since each variable is considered separately on the project's results, this method is also called one-way sensitivity analysis. In this method, the analyst will let each input variable change within their range of values. Under the condition that the remaining input variables remain unchanged, each value of the input variable being analyzed will yield a different project result. The analyst collects the project results and evaluates the results.
6 - Two-way sensitivity analysis method: Similar to the one-way sensitivity analysis method, it finds the project's results for changes in input variables. The two-way sensitivity analysis method allows to consider the change in the project's results corresponding to the change of two input variables at the same time. In this method, the analyst will let 2 input variables change at the same time, corresponding to each pair of values of the 2 variables being analyzed will yield a project result. Therefore, this method is also called two-way sensitivity analysis.
7 Advantages and disadvantages of the sensitivity analysis method doi voi pp phan tich do nhay co toi da bao nhieu bien so: 2 + Advantages: Based on EXCEL, the analyst can easily export the sensitivity analysis results of each variable or pair of two variables for the project's results. can somewhat assess the sensitivity of the project to input variables or the project's risk originating from 1 or 2 variables. + Disadvantages: Each time only allows to analyze the maximum change of 2 variables on the project's results, and must assume that the remaining variables do not change. Because the project has many input variables, only considering the change of 1 or 2 input variables will make the calculated project results not highly accurate. The analyst only makes subjective predictions about the project's results. 8 ✓ Scenario Analysis (Situation Analysis): - Concept: Scenario analysis is a technique used to analyze the results of a project considering the changes in the set of input variables. The analyst will arrange the changing values of the input variables into different scenarios and find the project's results for each scenario. - Role: . The most important role of scenario analysis is to allow the analyst to construct scenarios according to their subjective desires. The established scenarios can be based on different hypothetical platforms according to the analyst's wishes. In these scenarios, the input variables will be represented by a certain constant value. . Shows the results of the project appearing with different probabilities corresponding to each scenario case.
9 - Scenario analysis method kich ban nao có xs xay ra lon nhat: kich ban ky vong Overcoming the weakness of sensitivity analysis (only analyzing the impact of 1 or 2 variables on project effectiveness), scenario analysis is the simultaneous adjustment of multiple variables affecting the project to analyze the project's effectiveness. + The analyst usually constructs 3 main scenarios: . Pessimistic (when variables are forecasted at the worst level) . Optimistic (when variables are forecasted at the best level) . Expected: variables may evolve in different directions (is the scenario with the highest probability of occurrence) + The principle of project selection also complies with the usual standards of NPV, which are: . Accept the project when NPV >= 0 even in the worst situation . Reject the project when NPV < 0 even in the most optimistic situation 10 Advantages and disadvantages of the scenario analysis method: + Advantages: . It is quite easy to implement if the analyst has constructed the necessary scenarios. . Allows to construct scenarios as desired and can express the relationship between variables through their value point estimates. . The analyst can easily make investment decisions in two cases: first, the pessimistic scenario where the project result is still feasible, and second, the optimistic scenario where the project result is not feasible. It can be said that when a project has one of the two above results, further analysis is unnecessary because at this point the investor can completely make the decision to reject or accept the project. . The probability of scenario cases is unknown. 11 + Disadvantages: . The analyst will encounter difficulties when the project result in the pessimistic scenario is not feasible and in the optimistic scenario is feasible. In projects with such results, the analyst must rely on their experience and subjectively make decisions about the project's risk level and investment decision. However, constructing a reasonable and logical scenario is not easy. To build a complete scenario, the analyst needs to have experience to grasp the relationship of the input variables. Therefore, the scenarios built are very subjective to the analyst.
12 pp bat dinh 9.2.2. Uncertainty analysis: (probabilistic) The method of uncertainty analysis or probability analysis is widely used today. There are many different analysis techniques, the main method is the monte carlo simulation analysis method. - Concept: The monte carlo simulation analysis method is a technique that includes many layers of algorithms used to determine the probability of expected results. This method uses random numbers in the range of input variable values arranged according to the declared probability distributions and finds the output result. The above calculation process is repeated many times for each input variable value to calculate the expected result and determine the probability distribution of this result. 13 - Role: This method allows the analyst to know the probability distribution of the project's results in the changing environment of the input variables. This is the most important role of the monte carlo simulation analysis method. By repeating the calculation tasks in the financial model many times, corresponding to each time there will be a project result. These project results will be collected and let the analyst know the probability distribution of the project results, allowing to know the probability of a set of certain values within the range of project results. This is very useful when making investment decisions or comparing equivalent projects. The monte carlo simulation method allows the analyst to estimate the approximate likelihood of the project's results.
14 - Method: The analyst needs the support of a computer and simulation analysis software. co 4 kieu pp duoc su dung pho bien The most commonly used simulation analysis software today is Crystal Ball software. This software is very compatible with Microsoft Excel software so it is easy to install and use. To simulate analysis with Crystal Ball software, the analyst must go through the following steps: . Step 1: Set up the spreadsheet model . Step 2: Identify sensitive variables and their probability distributions . Step 3: Identify forecast variables . Step 4: Run the simulation . Step 5: Analyze the results obtained
15 Advantages and disadvantages of the simulation analysis method: - Advantages: . Allows to assume input variables change according to the desired probability distribution. . Know the probability of occurrence of output variables. . Knowing the probability of positive or negative NPV values. Estimate the probability of success or failure of the project under changing input variables. This can be said to be the biggest advantage of the simulation analysis method. . Based on this advantage, investors can make investment decisions or reject projects based on their perception of risk or by comparing the level of risk of different projects. . With the help of the Crystal Ball program, the process of running a simulation analysis is easy. 16 - Disadvantages . The accuracy of the simulation results depends heavily on the accuracy of the input variables, but determining the correct distribution type for the input variables is a very difficult task. To determine the correct types of distribution, the analyst must have experience or expertise in certain fields. For some variables, the analyst requires a historical range of values to find their distribution. . The model built requires accuracy and a reasonable level of detail, but if the model is set up incorrectly, the predicted output is also wrong. Even if the analyst spends a lot of time and cost to find a reasonable distribution for the input variables, but the model is not accurate, it is useless.
17 Summary: - Deterministic analysis method (sensitivity analysis and scenario analysis): Based on the given constant values of each input variable to find the output result. - For the probabilistic or uncertain analysis method, the analyst will consider the probability distribution of the input variables as in the simulation analysis method. The diversity of methods provides the most general view of the project's risk level and the basis for planning strategies. Each method has its advantages and disadvantages. Therefore, it is necessary to combine methods to achieve the best goal. These methods only allow investors to consider risk and expected benefits or to minimize risk, not to replace the decisions of investors.
