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Risk analysis techniques : acceptance and effectiveness in strategic capital investment decisions / Donald C. Vanderbrook.

by Vanderbrook, Donald C.

Risk assessment

Strategic planning

Simulation methods

xii, 246 leaves : ill. ; 29 cm.

Advisor: John Snyder.

Committee members: Dr. Paul Hudec, Dr. Bruce Thompson.

Section I: Risk analysis basis - Section II: Risk and company valuation - Section III: Improvements to the state of the art - Section IV: Survey results and summary of work - Glossary - Bibliography - Appendices A) Sensitivity analysis - B) SCERT likelihood/impact and risk response example - C) SCERT conditions/outcomes matrix - D) SCERT effects and conditions matrix - E) Decision tree model - F) IRB protocol and survey questionnaire - G) Survey graphical results - H) MTSA© results page - I) Optirisk iteration stabilization plots - J) PRA© data output - K) @RISK example data (pre-simulation).

The ability of a business to predict the long-term impact of capital investment decisions from both a tactical and strategic initiative has become a necessity. No longer can intuitiveness or basic measures such as simple payback be the only tools leaders of typical businesses that are engaged in manufacturing, service or other for profit venture use to chart the direction of their companies.

Accurately determining the risk in a capital venture is paramount in the overall performance and ultimate growth or decline of a business. The lack of sound understanding and means to assess risk in long-term business decisions can lead to poor, or even catastrophic financial performance. There is a need to utilize a more sophisticated approach to judge the worth and ultimate risk of both investment and resource allocation decisions in today’s fast paced – capital-intensive business world. Risk can consistently be minimized by utilizing financial techniques as a crosscheck to short term payback analysis and judgmental modes of capital allocation and project selection. However, can it be done in a way that is a generally accepted method, and useful to the general business community?

The mission of this work is addressing the acceptability and effectiveness of advanced risk analysis in capital investment decisions as follows: 1. To investigate and summarize the basic methods for assessing financial risk in capital investment decisions as well as exploring new or alternative methods that are advanced in their applications. 2. Adapt and enhance existing risk analysis techniques to broaden the scope of use by demonstration of a working simulation model developed by the writer that is useful in making sound decisions throughout the various phases of a capital investment project. Compare the model to commercially available risk simulation software packages for ease of use, accuracy and interpretation.

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