Application of scenario analysis in the investment projects evaluation

Brzaković, Tomislav; Brzaković, Aleksandar; Petrović, Jelena

doi:10.5937/ekopolj1602501b

Cited by 5 publications

(3 citation statements)

References 6 publications

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“…Метою є узгодження переваг за показниками NPV та AIRR. У [7] розглянуто застосування методу сценаріїв при оцінці результатів проєкту. У роботі [8] проєктні ризики оцінюються опосередковано, за допомогою аналізу фінансової стійкості проєкту, явні формули розрахунку значень ризиків відсутні.…”

Section: Vasiliev Alexander Vasilieva Nataliia Tupko Natalia Criteria...unclassified

“…Тепер узагальнемо показник (7), замість нього введемо [9] показник DPAR k (Discounted Period of Acceptable Returnдисконтований період прийнятної прибутковості) для k-го сценарію розвитку ІП:…”

Section: Vasiliev Alexander Vasilieva Nataliia Tupko Natalia Criteria...unclassified

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Criteria for Financial Acceptability of an Investment Project

A.,

N.,

2024

Naukovij vìsnik Hersonsʹkogo deržavnogo unìversitetu. Serìâ Eko

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Н itability to the minimum of investor requirements. For this, the values of discounted indicators of financial efficiency of the investment project NPV (Net Present Value) and PI (Profitability Index) should be compared not with break-even values, but with the lower limit of profitability acceptable to the investor. Instead of two other main indicators of the financial efficiency of the project -IRR (Internal Rate of Return) and DPP (Discounted Payback Period) -the authors propose to use new, more general indicators of financial project's acceptability -IRAR (Internal Rate of Acceptable Return) and DPAR (Discounted Period of Acceptable Return). For the break-even level of project's profitability, the values of the new and traditional indicators are the same, that is: IRAR = IRR, DPAR = DPP. Since the criteria for financial project`s acceptability are formulated for a situation of uncertainty, then the mathematical expectations of the values of the corresponding indicators are considered. The application of the proposed criteria for the financial acceptability of the project is illustrated with a specific example.As an example, an investment project with a rental flow of payments and three scenarios of possible development is considered. For this project, an analysis of its financial acceptability when setting different levels of project's profitability. In a situation of partial uncertainty, decisions on the implementation of a any investment project are made taking into account two factors: the profitability of the project and its risk. Therefore, in addition to indicators of the financial acceptability of the project, the article also considered indicators of the risk of unacceptably low profitability of the project. For the example under consideration, the values of these risk indicators were obtained using the scenario method and the Monte Carlo method.Keywords: criteria of financial efficiency of the project, levels of profitability of the investment project, analysis of financial acceptability of the project, risk of unacceptable project profitability, methods of scenarios and Monte Carlo.

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Section: Vasiliev Alexander Vasilieva Nataliia Tupko Natalia Criteria...unclassified

Criteria for Financial Acceptability of an Investment Project

A.,

N.,

2024

Naukovij vìsnik Hersonsʹkogo deržavnogo unìversitetu. Serìâ Eko

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“…The proposed approach is not universal: it is more suitable for estimating money flows with opposite signs. Article [16] is devoted to studying using the method of scenarios of a concrete high-risk project. The study has remained uncompleted.…”

Section: Literature Review and Problem Statementmentioning

confidence: 99%

Development of a systems approach to assessment of investment project risks: risks of unacceptably low project profitability

Vasiliev

Vasilieva

Tupko

2022

EEJET

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A new systems approach to quantitative estimation of financial risks of investment projects was proposed: an integral risk of the project as a whole for all its parameters at once and the risks for each of its parameters separately. At the same time, the very concept of the project risk has been generalized: instead of the conventional risk of unprofitability, a new, more general concept of the risk of unacceptably low project profitability has been introduced. Two levels of the project profitability were considered: a level acceptable to the investor and a realistically achievable level. Corresponding values of design parameters and indices of financial efficiency of the project were found for these levels. Based on the found values, relative margins of investment acceptability and risks of unacceptably low profitability of the project were calculated. A procedure of comprehensive assessment of the risk of unacceptable low profitability of the project for cases of high certainty and partial uncertainty has been developed. Explicit formulas for quantitative risk assessment of unacceptably low profitability of the project have been derived, ranges of values of all risks under consideration have been determined and appropriate recommendations have been given. Explicit formulas for calculating the values of project risks and dynamic points of project acceptability are convenient and useful for software implementation (for example, within the Monte Carlo method). For the Monte Carlo method and the method of scenarios, another alternative approach to assessing the integral risk of unacceptably low project profitability was proposed by the authors based on the direct calculation of unacceptable scenario values of any criterion of the project financial efficiency. A new index of financial efficiency of the project has also been introduced: a discounted period of acceptable return (discounted payback period of the project is its special case).

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VaR and VaO in project management: A new approach

Węgrzyn

2024

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The purpose of this article is to investigate an approach in which both VaR and value at opportunity (VaO) are used to evaluate projects. VaO in this case answers the question of what is the largest profit a decision-maker can expect at the assumed level of probability. This article presents an approach involving estimating VaO in a new way and the VaO/VaR ratio, which are important when making decisions regarding projects. It also presents a method to determine the probability of achieving a result that is not worse than the adopted goal value (GV). The main advantages of the proposed approach are more information about profit and loss (P&L) distribution and improved communication with stakeholders and decision-makers.

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Application of scenario analysis in the investment projects evaluation

Abstract: Sumarry Investing represents an investment in the present to achieve certain effects in the future

Cited by 5 publications

References 6 publications

Criteria for Financial Acceptability of an Investment Project

Criteria for Financial Acceptability of an Investment Project

Development of a systems approach to assessment of investment project risks: risks of unacceptably low project profitability

VaR and VaO in project management: A new approach

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