RISK MANAGEMENT OF PROJECTS IN DEVELOPING ECONOMIES

Risk Management of Projects in Developing Economies: the Case Study of China and Pakistan

Table of Content

CHAPTER-I: INTRODUCTION4

Background of Risk Management6

Significance of the Study9

Objectives of the Study11

CHAPTER-II: LITERATURE REVIEW13

Risk Assessment18

Risk Prioritization19

Risk Control And Resolution21

Some Strategies For Risk Monitoring And Avoiding Risk22

Project Risk Management in Developing Economies25

China: relevance of political risks in PPPs and lessons learned26

Current PPP activities in China27

Political risks and setbacks in China's PPP projects30

CHAPTER-III: METHODOLOGY36

Survey design and evaluation methods36

Survey objectives36

Survey response36

Survey scope37

Survey scale39

Combined methodology40

Fuzzy sets, fuzzy aggregation, and centroid ranking40

Non-parametric statistics42

The QQIR method43

Perceptions on political risks in China and selected Asian countries46

Ranking of political risks within countries47

Future PPP opportunities in Asian countries49

Correlations between risks and opportunities50

Validation50

CHAPTER-IV: FINDINGS AND ANALYSIS52

Greatest PPP opportunities in 2007 in Asia57

CHAPTER-V: CONCLUSION66

REFERENCES/BIBLIOGRAPHY70

CHAPTER-I: INTRODUCTION

A risk is an event exposing organizational stakeholders (managers, shareholders, employees, etc.) to future loss; its management involves bringing such events into decision-making frameworks using probability and the association of empirical frequency. Underlying the practice is an assumption that, through judgmental endeavor, the strength and stability of future returns can be secured for stakeholders rather than left to fate. Managing risk involves three organizing activities:

1. Identifying and classifying risks. Risks are registered according to standardized classifications, such as strategic risk (e.g., profit decline), operational risk (audit error, illegality, or infrastructure failure), and environmental/social risk (pollution). Different organizational experiences can be understood from one or more of these perspectives. The risk of bad publicity, for example, might affect strategic decisions on entering new markets, accounting provision for turnover fluctuations, and investment decisions in community projects.

2. Ranking risks in terms of likelihood, or the chance of the event occurring, and impact, or the level of loss should the event occur. These assessments are contingent on the organization's appetite for risk and its capacity to accept it.

Appetite is related to available knowledge (e.g., quality, levels of asymmetry), managerial backgrounds (experience, norms), motivation (aspirations, levels of defensiveness), and remuneration (compensation packages).

Capacity is related to financing and ownership/ knowledge structures (e.g., whether shareholders or family hold the residual risk, organizational competencies), markets (investor expectations, the prevailing cost of capital), and industry conditions (innovation rates, maturity, levels of regulation, the historical importance of cost control).

Together, appetite and capacity frame a prevailing logic of affordable loss within which risks are managed according to their severity (likelihood and impact) set against possible future returns, understood in the economic analysis of risk as some form of expected or prospective utility.

3. Avoiding, transferring, or controlling risks.

Risk avoidance involves terminating existing activities (e.g., replacing hazardous materials, exiting insecure markets) or deciding against new activities (pulling back from a prospective acquisition).

Risk transfer dilutes potential losses by involving other parties, using mechanisms like insurance, outsourcing contracts, and joint ventures. Transfer still requires management in assessing the intentions and abilitites of partners.

Mitigation can involve hedging investments, planning for multiple futures, using assets with lower specificity (e.g., adaptable machinery, a multitasking workforce), implementing safety nets (running old and new IT systems or buildings alongside one another in case of teething problems), protecting ...