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Assessing Uncertainty and Risk in Public Sector Investment Projects

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ABSTRACT

The feasibility and profitability of large investment projects are frequently subject to a partially or even fully undeterminable future, encompassing uncertainty and various types of risk. We investigate significant issues in the field of project appraisal techniques, including risks and uncertainties, appropriate risk analysis, project duration as well as the dependencies between (sub-) projects. The most common project appraisal techniques are examined addressing benefits and weaknesses of each technique. Furthermore, the practical use of the different techniques for the public sector is examined, exemplifying this with a small-scale analysis of the risk analysis procedures of the World Bank. Our finding suggest that in particular for the public sector, practical implementation of quantitative techniques like Monte Carlo simulation in the appraisal procedure of investment projects has not fully occurred to date. We strongly recommend further application of these approaches to the evaluation of processes and financial or economic risk factors in project appraisal of public sector institutions.

Conflicts of Interest

The authors declare no conflicts of interest.

Cite this paper

K. Bock and S. Trück, "Assessing Uncertainty and Risk in Public Sector Investment Projects," Technology and Investment, Vol. 2 No. 2, 2011, pp. 105-123. doi: 10.4236/ti.2011.22011.

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