Part 3 Flashcards
Key factors in managing a successful project
- A clear definition of the aim of the project, reflecting the customer’s needs
- Full planning
- Thorough risk analysis
- Regular monitoring of developments
- Measurement of performance and quality standards
- Thorough testing at all stages
- Management of critical path issues
- Appropriate pacing to ensure that the right things get done at the right time
- Challenging but stable relationships with external suppliers
- A supportive environment
- Excellent communication between everyone involved
- Positive conflict management
- A schedule of what needs to be reviewed at each milestone review point
Written strategy contains details of:
- Project objectives
- Financial and economic objectives
- Statement of how the objectives will be met
- Breakdown of the work to be done
- Key milestones for project review
- Quality standards for meeting objectives
- Project sponsor’s role
- Role of any third parties
- Expected cost of project
- Need for insurance or reinsurance
- Financing policy
- Technical policy
- Legal policy
- Risk management policy
- Communications policy
- IT policy
Criteria considered in initial project appraisal
- Financial results and risks
- Synergies
- Political constraints
- Sufficient upside potential
- Best use of scarce resources
Specific risks can be identified by
- High-level preliminary risk analysis
- Brainstorming session
- Desktop analysis
- Risk register
- Risk matrix
Characterise risks by
- Frequency
- Consequence
- Controllability
- Correlation between risks
Ways of Mitigating Risks:
- Avoiding the risk
- Reducing the risk – either reducing the probability of occurrence or the consequences or both
- Reducing uncertainty
- Transferring risk
- Insuring risk
- Sharing risk with another party
Mitigation option will be assessed considering
- The effect on the frequency and consequence
- Cost and feasibility of implementation
- Any secondary risks that arise
- Mitigation for secondary risks
- Overall effect on the NPV
Considerations in the investment decision beyond the investment submission
- Allowance for likely bias of approximation of estimates
- Hunch
- Knowledge not in possession of those who formed the investment submission
- Last-minute developments
- Overall project credibility
Liquidity reasons for holding money market instruments
- To meet short term liabilities
- To take advantage of investment opportunities
- If outgo is uncertain
- If money has been received and is waiting for investment in other asset classes
- To protect the monetary value
Circumstances making cash attractive
- Rising interest rates
- Economic recession
- Weakening domestic currency
- General economic uncertainty
Yield curve theories
- Expectations theory
- Liquidity preference theory
- Inflation risk premium theory
- Market segmentation theory
Reasons market may be uncertain about future inflation
- Less government commitment to low inflation
- Loose monetary policy
- Rapid economic growth
- Devaluation of domestic currency
Listed companies are generally more
• Marketable
• Secure
• Easy to value
Than unlisted companies
It is sensible for investment analysts to specialise within particular investment sectors because:
- The factors affecting one company within an industry are likely to be relevant to other companies in the same industry
- Much of the information for companies in the same industry will come from a common source and will be presented in a similar way
- No one analyst can expect to be an expert in all areas, so specialisation is appropriate
- The grouping of equities according to some common factor gives structure to the decision-making process. It assists in portfolio classification and management
Share prices in an industry are correlated because
- Same resources – similar input costs
- Supply to same markets – similarly affected by changes in demand
- Similar financial structure – similarly affected by changes in interest rates