2949775131

Ostrava 8.-9. zan 2010

5. mezinarodm konference Rizenf a modelovdnf finanćnfch rizik VŚB-TU Ostrava, Ekonomicka fakulta, katedra Financf

1. Risk identification in an investment project - a methodical approach

In generał, risk identification consists in identification of risk sources and specific forms of risks in companies. As emphasised by K. Jajuga „(...) an entity’s risk management involves making decisions and taking measures by the entity, in order to reach an acceptable risk level”[ 1 ]. According to the International Risk Management Institute in Dallas „(...) risk identification is perhaps the most crucial part of the risk management process because an exposure that is not identified can’t be properly managed”[2]. Referring to project risk management, R.M. Wideman defines risk identification as „(...) the process of systematically identifying all possible risk events which may impact on a project”[3]. This defmition is clearly the most accurate representation of the risk identification concept, in terms of risk management in an investment project. Risk identification, however, irrespective of an area or a company’s profile, always has to be looked upon as a separate process, in which a number of appropriate methods, techniąues and tools are used. Also, the extent to which specific risk identification methods can be applied will vary, depending on a situation and needs. In some companies, one set of methods will prove morę useful, in other companies - another one. It should be emphasised, however, that a risk identification process, no matter what circumstances and company profiles, will constitute an essential and, at the same time, initial stage of risk management. The generał risk management concept is illustrated in a figurę 1.

Figurę 1: The Risk Management Structure

RISK IDENTIFICATION ]

I

[ RISK CLASSIFICATION ]

RISK ANALYSIS    RISK ATTITUDE

RISK RESPONSE

Source: [4J.

As you can see, the figurę 1 shows the stages of a risk management process. According to PMBOK® Guide (Project Management Institute in Newtown), the risk identification process is composed of six stages phases, i.e. risk management planning, risk identification, qualitative risk analysis, quantitative risk analysis, risk response planning, risk monitoring and risk control [5]. Summing up, „(...) risk management is a cyclical process that must be repeated regularly during the course of a project”[6], and risk identification constitutes the basie, first and initial stage in the entire risk management process. „Risk identification, just like the entire risk management process, should be carried out continuously (i.e. throughout the entire lifecycle of an investment project) and in various dimensions, in various sections, from various perspectives and in various areas as this ensures that the most comprehensive list of potential risks a given investment project is exposed to can be compiled”[7]. „An essential thing at this stage is to evaluate co-occurrence of specific risks and their relationships, so that