Risk Management is one of the most important areas within Project Management and it should be included in each efficient Business Case.

When referring to risk events (Threats or Opportunites) there are several internal and external factors that might influence the investment’s cash flow, thus affecting the Net Present Value (NPV), the Internal Rate of Return (IRR) and the Payback Period. 

A correct approach for an efficient risk management must start off with a methodology; this sets out the risk management activities, whilst defining risk tolerances and impact types.

This risk management planning process sets the framework for the Risk Identification, the Qualitative and Quantitative Risk Analysis, and Risk Response Planning.

The Quantitative Risk Analysis, done through the means of a specialised software package – such as Primavera Risk Analysis, can be the decisive factor for making the right call:

GO / NO GO ahead with the proposed investment

The integrated simulation model Monte – Carlo can determine the quantified impact of the risks on NPV, IRR and the payback period. This proactively determines whether the KPIs are above the Company’s hurdle rates, by taking into account the risk model used.

The costs of running a probabilistic cash flow risk analysis are understandably lower in comparison with the consequences of not having a well-documented business case. Therefore, the main concern of every entreprenour before getting into a start-up should be building a sound Business Case.

‘Plan your work and work your plan’