《《Risk Analysis in investment appraisal》.pdf

Risk Analysis in Investment Appraisal by Savvakis C. Savvides Published in “Project Appraisal”, Volume 9 Number 1, pages 3-18, March 1994 © Beech Tree Publishing 1994 Reprinted with permission * ABSTRACT This paper was prepared for the purpose of presenting the methodology and uses of the Monte Carlo simulation technique as applied in the evaluation of investment projects to analyse and assess risk. The first part of the paper highlights the importance of risk analysis in investment appraisal. The second part presents the various stages in the application of the risk analysis process. The third part examines the interpretation of the results generated by a risk analysis application including investment decision criteria and various measures of risk based on the expected value concept. The final part draws some conclusions regarding the usefulness and limitations of risk analysis in investment appraisal. The author is grateful to Graham Glenday of Harvard University for his encouragement and assistance in pursuing this study and in the development of the RiskMaster and Riskease computer software which put into practice the concepts presented in this paper. Thanks are also due to Professor John Evans of York University, Canada, Baher El Hifnawi, Professor Glenn Jenkins of Harvard University and numerous colleagues at the Cyprus Development Bank for their assistance. * Savvakis C. Savvides is a Project Manager at the Cyprus Development Bank, a Research Fellow of the International Tax Program at