Financial risk assessment in project selection

Abstract

This paper examines financial risk assessment in the project selection process. In the project selection process the feasibility analysis is used to evaluate projects, with the financial feasibility as the dominating factor. In recent years more emphasis has been on risk assessment in project management, and methods of assessing financial risk have been developed. Project managers are realising the opportunities that risk management entails. The findings of this paper are that the project selection process should not only focus on the financial feasibility of a project, but also the financial risk assessment. Risk assessment provides project managers with a better base to a more sound decision making. Monte Carlo simulation helps project managers to focus on risk and the effects of all uncertainties in projects. A simple project comparison is used to illustrate the application of this financial risk assessment in practice.