Investment activity

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PROJECT RISKS

Project risks are a combination of risks preventing implementation of the investment project or reducing its efficiency (commercial, eco­nomic, budgetary, social, etc.)

There are different systems of project risks classification — de­pending on the selection of criterion.

First, according to the phases and stages of the project activity: risks on the pre-investment phase, investment (constructing) phase, operational phase.

Second, according to the criterion of possibility/impossibility for participants of the project activity to influence upon factors of risk. From this point of view risks can be divided into 1) internal, 2) exter­nal.

Third, according to the possibility of protection against risks: 1) insured risks, 2) uninsured risks. Insured risks can be divided into risks covered by: 1) guarantee, 2) insurance, 3) reserve funds.

The most wide-spread classification is classification based on the real practice of project activity. It is so-called «mixed» classification based on the number of peculiarities. The example of such classifica­tion is given below:

• 
  Risk connected with instability of economic laws and current
  economic situation, terms of investment and use of profit;
  
• 
  Foreign economic risk (probability of introduction restrictions
  on exports and trade, etc.);
  
• 
  Uncertainty of the political situation, risk of unfavourable social
  and political changes in the country;
  
• 
  Incompleteness and inaccuracy of the information about dy
  namics of technical and economic indicators;
  

• 
  Fluctuations of prices, exchange rates, etc.;
  
• 
  Uncertainty of investment climate conditions;
  
• 
  Uncertainty of goals, interests and behavior of participants;
  

• Incompleteness and inaccuracy of the information about finan
cial state of participants (possibility of non-payments, bankruptcies, so
on).

Each such «mixed» classification can contain its own risks de­pending on the point of view on the project activity and experience of the specialists working on the elaboration of «typical» risks in the pro­ject activity.

1. What are project risks?

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2. 
   How can project risks be classified?
   
3.