Using value at risk for integrated project risk evaluation

Lai, F. and Stange, W. (2009). Using value at risk for integrated project risk evaluation. In: Project Evaluation 2009. Project Evaluation Conference 2009, Melbourme, VIC, Australia, (223-232). 21-22 April 2009.

Author Lai, F.
Stange, W.
Title of paper Using value at risk for integrated project risk evaluation
Conference name Project Evaluation Conference 2009
Conference location Melbourme, VIC, Australia
Conference dates 21-22 April 2009
Proceedings title Project Evaluation 2009
Place of Publication Carlton VIC, Australia
Publisher AusIMM: Australasian Institute of Mining and Metallurgy
Publication Year 2009
Sub-type Fully published paper
ISBN 9781920806989
Start page 223
End page 232
Total pages 10
Language eng
Abstract/Summary Assessing the risks in a mining project is a key aspect of project evaluation. This is an exacting and demanding task because of the complexity due to the need to deal with uncertainty over long time periods. The way risks are assessed and managed is critical to the long-term success of the projects and the business. Discounted cash flow (DCF) analysis is commonly used for project and risk evaluation. A discount rate is selected that accounts for uncertainties in the cash flows. However, it is difficult to determine an appropriate discount rate due to the large number of factors that need to be considered and the complex relationships between risk sources. Using a proven framework, ævalue at riskÆ (VaR), this paper proposes to rigorously model and quantify ærisk at sourceÆ. The approach was first employed to assess financial market risks and is now widely used in the banking sector for risk assessment. In project evaluation, all risk sources are identified and estimated separately to ensure the overall project risk is quantified accurately. A bottom-up approach has been proposed. Estimates are first carried out for risk factors at the bottom of the project structure. The assessment is then applied at increasingly higher levels until the overall project risk is estimated. Value at risk is a versatile methodology and can be used in a local or integrated manner. The final value is objective and the calculation steps can be easily justified and followed. Four case studies have been included to illustrate how the proposed approach can assist management in decision-making.
Q-Index Code E1
Q-Index Status Provisional Code
Institutional Status Unknown

Document type: Conference Paper
Collection: Julius Kruttschnitt Mineral Research Centre Publications
 
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Created: Thu, 02 Aug 2012, 14:38:24 EST by Karen Holtham on behalf of Julius Kruttschnitt Mineral Research Centre