The Recognition and Measurement of Project Risk on the Decision Making of Capital Investment

Abstract

Despite its impact on the management of a firm, the project risk profile of the capital investment has not been necessarily much studied. In this context, the motivation of this paper is to quantify the project risk profile, starting from the judgmental forecast of sales, building the statistic distribution of the value of the project and deriving the risk parameters; standard deviation, skewness and kurtosis. Our contributions are not only to clarify the measurement method of the project risk, but to discuss the effect of the risk parameters on the decision making of capital investment with the consideration of the risk control.