Economic Risk Analysis

3.1 Introduction

This chapter discusses the main variables affecting an economic study. Assessing and managing investments in a new project involves a complex interaction of many variables. Any big orga­nization will have a range and variety of projects to perform. Prioritizing them requires applying economic tools to complete a risk assessment for each.

Uncertainty a constant preoccupation in any economic study, is assessed by applying the Monte Carlo method for simulating the chain of decisions to be taken under uncertainty is most widely used in industrial projects.

The major risks in any project will be the following:

• Economic risk and value

• Technical risk

• Political risk

Economic risk is affected by market predictions and changes in currency rates, inflation rate, and energy prices, among others.

Technical risk is affected by the engineering study applying new technology, as in the case of oil and gas exploration and produc­tion projects in which there is always a probability to find a "dry" well after drilling. Political risk depends on the country, as some countries have political stability, and in other countries political conditions are unstable.