Preliminary communication
Research into specific risk assessment in project financing
Ivana Bestvina Bukvić
Abstract
An assessment of investment justification in terms of risk enables the decision maker (investor) to select,
among available alternatives, the one with the most favourable correlation between the expected profit
and assumed risk. At the micro level, the uncertainty of business success is extremely high in production
activities, which is an additional incentive for taking a comprehensive approach to the issue of investment
decision-making and the development of risk assessment techniques applicable in this particular segment
of industry. Given the complexity of the manufacturing process, the length of the production cycle, market
conditions, and entity-specific risks (which are difficult to measure), projects in manufacturing industry
require a detailed and comprehensive assessment of specific risk factors and their cost-effectiveness. Ne
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vertheless, since specific risks can be diversified, investment proposal assessments in practice usually do
not cover their quantification and analysis. However, the majority of business entities do not have enough
active projects in various industries to be able to fully diversify their business and thus minimize the level
of specific risks. The impact of specific factors becomes one of the most important elements for business
success. This paper analyses how far risk assessment methods regarding specific risks are used in practice.
Furthermore, it analyses the significance of specific risks for total investment risk. This study gives new insi
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ghts into the significance of specific risks to the overall investment assessment and the need for permanent
development of traditionally used investment assessment models.
Keywords
specific risks; investment project assessment; business decision making
Hrčak ID:
116450
URI
Publication date:
31.12.2013.
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