5. Risk Management Flashcards
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What is risk management in project financing?
Risk management involves identifying, assessing, and controlling potential risks to ensure the project meets its objectives in terms of time, budget, scope, and quality. (Lesson 5, p.1)
What are the key steps in the risk management process?
- Risk Identification, 2. Risk Analysis, 3. Risk Response Planning, 4. Risk Monitoring and Control. (Lesson 5, p.1)
What are the main categories of risks in project financing?
- Project-Specific Risks, 2. Market and Demand Risks, 3. Financial Risks, 4. Regulatory and Legal Risks, 5. Political and Social Risks, 6. Operational Risks, 7. ESG Risks, 8. Counterparty Risks. (Lesson 5, p.2)
What are project-specific risks in financing?
These risks arise from project design, scope, construction, and operational challenges, including design failures, construction delays, and completion risks. (Lesson 5, p.2)
What are market and demand risks in project financing?
Risks associated with demand fluctuations, supply chain disruptions, commodity price volatility, and competition. (Lesson 5, p.2)
What are financial risks in project financing?
Risks include interest rate variability, exchange rate fluctuations, inflation, and liquidity constraints affecting cash flow. (Lesson 5, p.2)
What are regulatory and legal risks in project financing?
Risks related to obtaining permits, regulatory changes, tax laws, environmental compliance, and legal disputes. (Lesson 5, p.3)
What are political and social risks in project financing?
These include risks from nationalization, expropriation, government policy changes, force majeure events, and community resistance. (Lesson 5, p.3)
What are operational risks in project financing?
Risks occurring during operations, such as maintenance issues, labor disputes, health and safety hazards, and equipment failures. (Lesson 5, p.3)
What are Environmental, Social, and Governance (ESG) risks?
Risks related to climate change, social impact concerns, and governance failures leading to mismanagement or corruption. (Lesson 5, p.3)
What are counterparty risks in project financing?
Risks linked to the financial health and performance of sponsors, contractors, suppliers, and off-takers failing to meet contractual obligations. (Lesson 5, p.4)
What are the key tools for risk identification?
- Risk Registers, 2. SWOT Analysis, 3. Expert Judgment, 4. Checklists, 5. Scenario Analysis. (Lesson 5, p.4)
What are the two main types of risk analysis?
- Qualitative Risk Analysis, 2. Quantitative Risk Analysis. (Lesson 5, p.5)
What is qualitative risk analysis?
A method that assesses risks based on probability and impact, ranking them for prioritization using tools like Probability-Impact Matrices and expert judgment. (Lesson 5, p.5)
What is quantitative risk analysis?
A method that uses mathematical models to evaluate risks through Sensitivity Analysis, Scenario Analysis, Monte Carlo Simulations, and Value-at-Risk calculations. (Lesson 5, p.5)
What are key financial metrics in risk analysis?
- Net Present Value (NPV), 2. Internal Rate of Return (IRR), 3. Debt Service Coverage Ratio (DSCR), 4. Payback Period, 5. Probability of Default (PD). (Lesson 5, p.6)
What are risk response planning strategies?
- Avoidance, 2. Mitigation, 3. Transfer, 4. Acceptance. (Lesson 5, p.6)
How does risk avoidance work?
Eliminating risks by adjusting project plans, choosing proven technologies, and avoiding unstable regions. (Lesson 5, p.6)
How does risk mitigation work?
Reducing risk probability and impact through contingency reserves, quality control, and supplier diversification. (Lesson 5, p.6)
How does risk transfer work?
Shifting risk to third parties using insurance, hedging, fixed-price contracts, and performance guarantees. (Lesson 5, p.6)
How does risk acceptance work?
Accepting risks when mitigation is costly or unnecessary, such as small currency fluctuations or minor operational risks. (Lesson 5, p.6)
What are key risk monitoring tools?
- Risk Registers, 2. Early Warning Systems, 3. Key Risk Indicators (KRIs), 4. Variance Analysis, 5. Audits and Compliance Checks. (Lesson 5, p.7)
What is stress testing in risk management?
Stress testing simulates extreme scenarios, such as revenue declines or cost increases, to assess financial resilience. (Lesson 5, p.7)
What is the role of financial institutions in risk management?
Lenders require compliance with loan covenants, credit risk assessments, and regular risk reporting. (Lesson 5, p.7)
