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An insight into strategic investment appraisal: project risk assessment

Harris, E. P. (1999) An insight into strategic investment appraisal: project risk assessment. DBA thesis, University of Reading

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Abstract/Summary

One of the practical problems faced by managers when appraising strategic investment opportunities, is how to deal with the uncertainty of the outcome(s). They often make subjective judgements about the riskiness of prospective projects, but these are rarely formalised into their strategic decision-making processes. Little attention is paid to this qualitative side of investment appraisal in the corporate finance literature. This thesis reports on a field-based study carried out in the logistics industry, which followed an innovative action research approach. It involved the analysis of 25 strategic investment projects, assessed by 57 participants in 8 management teams, discussed at 12 focus group meetings, held in 5 European countries. Using a repertory grid technique, constructs were elicited, which managers used to explain the riskiness of a particular project, compared to other projects of a similar type that they had knowledge of from past investment appraisals. The results of the study include a set of twelve project risk attributes, a project typology which defines three types of project, each with a set of weightings reflecting the relative importance of the attributes to the participants. These provide a useful insight into managers' perceptions of the risk attached to strategic investment projects in a large divisionalised organisation. In addition to the context-specific results, a new process model has been developed through this study, which provides a framework for utilising this risk assessment technique in other organisational settings. It is designed to enhance strategic decision­making, by capturing managers cognitive evaluation of the strategic factors and risk profile of projects, in a structured group decision process, and balancing the results with those of the primary financial appraisal techniques in a decision support matrix. As a result of this developmental research programme the new process model is now embedded in the investment appraisal procedures across the European Group of companies which participated in the study.

Item Type:Thesis (DBA)
Thesis Supervisor:
Thesis/Report Department:Henley Management College
Identification Number/DOI:
Divisions:Henley Business School
ID Code:87063

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