Question

what are some risk factors when making decisions regarding capital projects? And provide details

Answer 1

Some Risk which affect decisions regarding capital projects are
1. Market Risk
2. Project Risk
3. Industry Risk
4. International Risk

Market Risk is a systematic risk which affect entire economy. All industries are affected by this risk. Interest rate, tax rates , inflation, etc are some of the important market risks. This risk can only be minimised by expanding to other countries.

Project specific risk are standalone risks with respect to a particular project. Project specific risk occurs due to employee or the faulty procedures of implementing a project . On paper the cash flows may seem perfect but the ground reality might be different due to operational risk and faulty execution of the project.This error occurs particularly when the company invests in non core operations or project.

Industry risk : Problems might occur in a specific industry due to change in the regulations in a country. The lack of supply of raw material could be another source of risk for a specific industry.Technological advancement could also be a risk for the industry.

International Risk: Political instability, taxation , unfavourable fluctuations of exchange rate could increase investment in projects abroad.