Project management / Risk management

• Equity
• Debt
• Hybrid :convertible loan stocks

What determines the method used by the provider to raise the capital needed will depend on a number of factors including

• The current demand for various securities from investors.
  • For example, in times of high interest rates the issuing of debt will be more expensive as investors will require a higher rate of return so equities may be issued instead.
  • The length of duration of the bond will be based on investor appetite.
  • The tax that different instruments are subject to will have an effect.
• From the company's perspective the various costs and implications on ways that the running of a business will be restricted will come into play.
• Some regulations protecting various investors which may mean that certain ways of raising capital will be restricted.
  • When issuing a debt, the trust deed may restrict furthur funding through debt to protect current debt holders.

The generic risks are

• Operational risk
  • The objective of the project may not be met
  • over-budget: overestimation of sale
  • long time being taken
  • crime, eg fraudulent activities by workers
  • Insufficient capital: problems in raising the necessary finance initially/sponsor default.
  • Strikes
  • Bad weather
  • Cant repay debts
  • Catastrophe events
• Credit risk
  • Third parties do not repay their debts. Purchase reinsurance through multiple reinsurance companies. Only partner with companies with good credit ratings
• Market risk
  • price volatility.
• Liquidity risk
  • an individual or company, although solvent, does not have available sufficient financial resources to enable it to meet its obligations as they fell due. Keep a certain proportion of the assets as cash and match asset with liabilities.
• Product family and brand positioning risk
• Product technology risks
• Manufacturing technology risks
• Intellectual property position
• Supply chain and sourcing risks
• Cusumer acceptance and marketing risks
• Trade customer acceptance risks
• Competitor risks
• Commericial viability risks
• Organization and project management risks
• External risks
• Screening and appraisal risks
• Alliance risks

• Avoid the activity.
• Retain all of the risk
• Transfer all the risk to another party
  • Purchase insurance
  • Comment on the possible level of premium charged and the level of competitiveness of the market
  • Catastrophe bond. But such market may not exist yet
• Retain some of the risk and transfer others
  • Purchase insurance
• Take action to minimize the risk
  • Proper research should be done
  • Lay consequences on criminal activities
  • Assess all the factors that can affect the risk
• Diversify the risk

For each mitigation method, we need to consider

• Likely effect on frequency, consequesces, and expected value
• Feasibility and cost of implementing the option
• Any "secondary risks" resulting from the option
• Further mitigating actions to respond to secondary risks
• Overall impact of each option on the distribution of NPVs

• A high level preliminary risk analysis to confirm that the project does not obviously have such a high risk profile that it is not worth analysing further.
• Hold a brainstorming session of project experts and senior internal and external people who are used to thinking strategically about the long term.
• This would involve people that have worked in the areas being considered particularly
• understanding the risks that are relevant to this project.
• Identify project risks, both likely and unlikely, and upside and downside.
• Discuss identified risks and their interdependency.
• To help assess interdependency, a thorough categorisation of the risks identified may help.
• Attempt to place a broad initial evaluation on each risk, both for frequency of occurrence and probable consequences if it does occur.
• Generate initial mitigation options.
• Carry out a desktop analysis to supplement the results from the brainstorming session, by identifying further risks and mitigation options researching similar projects undertaken by the company or others in the past and obtaining the considered opinions of the experts in those locations who are familiar with the details of the project and outline plans for financing it.
• Carefully set out all the identified risks in a risk register, with cross references to other risks where there is interdependency.
• Reasons for minimum capital threshold
  • Overall, reserves and capital together will contain be designed to ensure the insurance company can withstand adverse circumstances.
  • This is necessary given the inherent volatility in the claims and other experience of insurance companies.
  • Without this there would be a lack of trust in the industry and insurance companies might fail more regularly leaving policyholders disadvantaged leading to political discontent.