Total Risk Evaluation for Capital Budgeting- Roundtable Discussion
Date of this version
total risk, systematic and non-systematic risk, evaluation of risk for capital intensive projects
This special session addresses a timely topic -- the evaluation and management of total risk for long-term capital intensive projects. Total risk is composed of two sets of risks, systematic and non-systematic. Systematic risks cannot be eliminated and are non-diversifiable. They are generated by market conditions, including globalization of production processes, outsourcing, supply chains and the requirements of servicing diverse clienteles. The non-systematic risks can sometimes be managed through diversification. They are usually specific to the project and/or the company. However, there are projects in sectors such as energy, transportation, infrastructure, health, education, and science and technology where diversification is often not an option. Projects in these sectors, imperative in all parts of the world and with some urgency in the BRIC countries, have to consider total risk.
Journal of Applied Finance