Engineering and contracting projects: A value at risk based approach to portfolio balancing

Caron, Franco; Fumagalli, Mauro; Rigamonti, Alvaro

doi:10.1016/j.ijproman.2007.01.016

Cited by 49 publications

(35 citation statements)

References 17 publications

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“…In terms of project evaluation, the NPVaR is presented as the decision-making criteria; although previous studies have been limited to the VaR decision-making process [8,10,20,35,36]. The authors of this current study noticed that the decision-making criterion for project investment is more conservative as it reflects the profitability impact factors of the project risks.…”

Section: Probabilistic Alternative Approachmentioning

confidence: 93%

“…Habibi et al [9] dealt with the conditional VaR of a cash-flow stream in the presence of an exchange-rate risk. Caron et al [10] used the VaR to obtain an improvement in balancing the overall portfolio of power-plant projects for a company operating in the engineering and contracting industry. These studies attempted to consider the risk variability by using the NPV at-risk method from the perspective of the investor, the creditor, and the project constructor.…”

Section: Related Workmentioning

confidence: 99%

“…The main difference between the traditional DCF method and the NPVaR method is the determination of whether each of the profitability impact factors accurately reflect the risks of the project. A Monte Carlo simulation shows the way that this distribution can be calculated for a given project, and how it can comprehensively measure the business risks of the project [10]. In fact, a Monte Carlo simulation can be easily applied to explain numerous types of practical assumptions regarding the probability distributions of the profitability impact factors of the cash-flow model.…”

Section: Improved Decision-making Process For the Var Modelmentioning

confidence: 99%

“…Although the VaR method has the advantage of reflecting the risk, its disadvantage is that the decision criterion is conservative due to excessive recognition of the risk, which often leads to loss of an investment opportunity for investors. In previous studies, the VaR method for various projects has been applied to evaluate the risk by reflecting the project [8][9][10][11]. For sustainable development, investors need to select good investment opportunities that are less risky and more profitable for their projects.…”

Section: Introductionmentioning

confidence: 99%

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A Probabilistic Alternative Approach to Optimal Project Profitability Based on the Value-at-Risk

Kim

2018

Sustainability

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This paper focuses on an investment decision-making process for sustainable development based on the profitability impact factors for overseas projects. Investors prefer to use the discounted cash-flow method. Although this method is simple and straightforward, its critical weakness is its inability to reflect the factor volatility associated with the project evaluation. To overcome this weakness, the Value-at-Risk method is used to apply the volatility of the profitability impact factors, thereby reflecting the risks and establishing decision-making criteria for risk-averse investors. Risk-averse investors can lose relatively acceptable investment opportunities to risk-neutral or risk-amenable investors due to strict investment decision-making criteria. To overcome this problem, critical factors are selected through a Monte Carlo simulation and a sensitivity analysis, and solutions to the critical-factor problems are then found by using the Theory of Inventive Problem Solving and a business version of the Project Definition Rating Index. This study examines the process of recovering investment opportunities with projects that are investment feasible and that have been rejected when applying the criterion of the Value-at-Risk method. To do this, a probabilistic alternative approach is taken. To validate this methodology, the proposed framework for an improved decision-making process is demonstrated using two actual overseas projects of a Korean steel-making company.

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Section: Probabilistic Alternative Approachmentioning

confidence: 93%

Section: Related Workmentioning

confidence: 99%

Section: Improved Decision-making Process For the Var Modelmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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A Probabilistic Alternative Approach to Optimal Project Profitability Based on the Value-at-Risk

Kim

2018

Sustainability

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“…In context of Portfolio management, risk management processes focus on analyzing the probability of the success or failure of Projects and on analyzing risks generated by the selection of a Project ensemble during the balancing of a Portfolio [46,50,51].…”

Section: Portfolio Riskmentioning

confidence: 99%

Project, Program and Portfolio Risk Perceptions

2017

LHHSS-17, ICEELB-17, Jan. 1-2, 2017 Dubai (UAE)

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Holistic investment assessment: optimization, risk appraisal and decision making

et al. 2008

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On deciding for the most appropriate investment when capital restrictions exist, investors define their alternatives and analyze each one of them. Traditionally, the definition, appraisal and analysis stages are treated separately. Herein, an innovative holistic method is proposed for bridging these stages. Within this method, investment attributes definition occurs by genetic algorithm optimization, while the analysis of the investment is realized through simulation. The method also proposes the NPV Expected Shortfall and the NPV Risk Preference Index as investment evaluation criteria. An illustrative case study of two mutually exclusive renewable energy investment scenarios is also used for demonstration purposes. Copyright © 2008 John Wiley & Sons, Ltd.

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Engineering and contracting projects: A value at risk based approach to portfolio balancing

Cited by 49 publications

References 17 publications

A Probabilistic Alternative Approach to Optimal Project Profitability Based on the Value-at-Risk

A Probabilistic Alternative Approach to Optimal Project Profitability Based on the Value-at-Risk

Project, Program and Portfolio Risk Perceptions

Holistic investment assessment: optimization, risk appraisal and decision making

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