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Anastasia Zhuravleva

Faculty of economy

Department of economics of enterprise

Speciality Economics of enterprise

The management of investment risks at the enterprise

Scientific adviser: Doctor of Economics, Professor Valentina Hobta

Resume Abstract

Abstract

Содержание

• Introduction
• 1. Theoretic fundamentals of management of investment risks
• 2. Development of situation according to assessing of investment risks
• 3. Methodic recommendations about decreasing of investment risks on the enterprise
• Conclusion
• References

Introduction

Topicality. The intensification of the economic development in Ukraine needs to have an essential increasing of the investment's amount and increasing efficiency of its using. It is necessary for Ukraine to have investments. The situation, which has happened now in Ukraine, shows that a great amount of Ukrainian constructions of enterprises, technique and equipments are shabby and archaic, and that's why it has to be changed. The State Statistics Committee says that 74,9% of basic equipments in the country are archaic.

At the same time, Ukraine belongs to countries with high investment risks, which appreciably put obstacles in the way from increasing an amount of investments in country economic. Therefore, it is necessary to improve the risk management mechanism and provide favorable conditions for making decisions on capital investment and increase investor interest.

Native and foreign scientists were researching the dimension of the investment risks and working out methods of decreasing. Among native scientists the most remarkable are the works of Maslova L., Oleneva L., Semenova N., Tarasova V., Hobti V. Among foreign scientists should be marked out such persons as Burmeistra E., Vinsa G., Maringera R., Rossa S. Questions about researching of risks situations, methods of management and possibilities of its decreasing are examined in their works. A lot of methods are worked out for management and decreasing of risk, but it’s necessary to have a clear conception about them and opportunity to use it.

Aim of the work. The aim of this work is to deepen into theoretic statutes and improve practical instruments of management of investment risks.

Object and the subject of the researching. The object of the researching is the process of management of investment risks on the enterprise in modern conditions of the management in Ukraine. The subject of the researching is theoretic methods of management and ways to decrease the investment risks on the enterprises.

Problems. According to placed aim following problems were formulated and solved:

• an economic situation and investment dynamic in Ukraine were analyzed;

• the classification of investment risks were worked out;

• methods of management of investment risks were determined;

• ways of decreasing the investment risks were determined ;

• methods of investment risk's estimation were researched;

• methodical recommendations about decreasing an investment risks on the enterprise were offered.

An approbation of the work's results. Main science and practice results of work were presented on the Ukrainian Scientific Practical conferensions of students and young researchers Modern Problems of investment and innovation activity management (Donetsk–2013, 2014) Donbas–2020: prospects of development like young researches see it (Donetsk–2104).

1. Theoretic fundamentals of management of investment risks

The analysis of the economic situation in Ukraine showed that the situation, which has happened now in Ukraine, in many aspects, is modeled under the influence of political, economical and social factors. The economical growth in any society based on interaction of several macroeconomical indices having an influence on effectiveness using of real capital and an available labor power. Macro economical indices are enough exact indicators of economical state in the country.

To select the most effective tools of governance was analyzed risk classification, which represent the probability (threat) of loosing by enterprise its part of recourses, deficiency of incomes and appearing of extra expenditures as a result of realization of particular industrial or financial activity. Investment risk is the risk the possibility or probability of full or partial non-reaching of expecting results of investment realization by investors, also this is a possibility of appearing unexpected financial losses in situation of uncertainty of investment conditions.

Management of risks is to reduce losses to minimum, which are connected with uncertainty during investment realization. For determination of possible loss sources and factors of risk should be analysed. This stage could be named as qualitative analyse of risk. Its realization based on classification of risks. These classifications don’t exclude each other and could be used concurrently during the analyse of separate investment. On the Illustration 1 showed types of risks which are formulated on base of several characteris.

It is necessary to mention that this classification is in some degree relative, because it is too hard to distinguish particular types of investment risks. A number of investment risks is in interconnection (correlates between each other), changes in one cause changes in other, and it influences on results of investment activities.

Investing in Ukraine independently from type of investment project is inevitably connected with uncertainty. Any investment project accompanies a variety of potential threats: unexamined technologies, lack of resources, changing of aims and objectives of the project and etc. It conditioned on permanent existence of probability of undesirable events. That’s why management of investment risk is one of the dominant processes during the examination of investment.

Risk management, risk management is the process of adoption and implementation of management decisions aimed at reducing the likelihood of an adverse outcome and minimizing potential losses caused by its implementation. In theory and in practice, there are many techniques of risk management, which anyway are aimed at their reduction. Analyzing the sources, there are several basic steps (Illustration 2), necessary for the successful neutralization of threats.

The analyze of economic literature showed that a great amount of authors mainly marked out four methods of management of investment risks:

• evasion of risk;

• non-resistance of risk;

• decreasing of risk;

• transfer of the risk.

Using these methods will reduce the loss of business from the risks and increase the efficiency of investment.

2. Development of situation according to assessing of investment risks

There are two groups of methods of evaluating investment risks: qualitative and quantitative. For a more accurate assessment of the risks of the investment project is necessary to use quantitative methods that involve numerical determination of the quantities of certain risks and risk of the project as a whole and are based on probability theory, mathematical statistics, operations research theory. Qualitative Risk Analysis allows to detect and identify the possible types of risks inherent in the project, as defined and described the causes and factors affecting the level of this type of risk. In addition, you must describe and valuation of all the possible consequences of a hypothetical implementation of the identified risks and suggest measures to minimize or compensate for these effects by calculating the valuation of these activities. However, to obtain information on the reliability of the riskiness of investment projects, it is necessary to use complex, both quantitative and qualitative methods.

The most widespread during the assessing of investment projects are such methods as:

• statistical method;

• step out analyze (method of parameter variations);

• method of testing of critical points calculation;

• scenario method (Method of formalized vagueness description);

• simulation modeling (Method of statistic tests, method of Monte-Carlo);

• method of adjustment of discounting rate.

Let’s look on some of them.

The most widespread method during the assessing of investment risk is statistical one, which is based on mathematical statistics methods. Calculation of medium expecting value arranged with the help of formula about average arithmetic suspended:

where x‑is medium expecting value, xi‑expecting value for every case, ni‑a number of observing cases (frequency) ∑‑sum in all cases

For making final solution measure of variability of possible result should be determined. For its assessing it used either dispersion

or mean-square deviation (MSD)

Despite simplicity of formulas, for using statistics method it is necessary to have a big volume of information during the long period of time. It is the main disadvantage of this method.

Method of step out analyze is widespredly used in investment project development during the assessing of investment risk. The most informative method using for step out analyze is the calculation of elasticity figure:

where x1‑is the basic value of variate parameters x2‑is the changed value of variate parameters NPV1‑is the value of the resulting index for basic variant NPV2‑is the value of the resulting index during the changing of parameter.

The higher is the value of elasticity figure the sensible is the project for changing of this factor, and the stronger it is exposed to risk/

The main objective of qualitative method is to discover and identify possible types of risk in examining project, also to determine and describe sources and factors, which have an impact on this type. Qualitative method, which doesn’t allow determining numerical value of risk of investment project, is to be a foundation in further researching with the help of quantitative methods. These methods use a mathematical apparatus of probability theory and mathematical statistics. The main objective of quantitative methods consists in numerical measurement of influencing of risk factors on effectiveness parameters.

Among quantitative methods of assessing of investment risks such methods are the most used:

• analyze of outgoing relevancy;

• analogy method;

• appraisal method.

It should be marked out, that the universal method which can help to make the full analyze and assess the risk of investment enterprise doesn’t exist. Every method has its own advantage sand disadvantages. Qualitative methods help to examine all possible risk situations and describe the whole variety of risks in examining investment project, but results of assessing often isn’t fully impartial and exact.

For qualitative risk management need to be able to reduce them. Due to risk analysis and assessment of development activities needed to reduce it. The high level of project risk results in necessity of finding ways to decrease it artificially. There are four basic methods of decreasing of investment risks:

• diversification;

• risk distribution between members of project;

• security;

• reservation of funds on covering contingencies.

Every mentioned method is directed on decreasing of probability of undesired events, its coincidences, and as a result on cutting down extra expenses, which are cased by influence of undesired factors. The choice of this or that method of decreasing of risk should be based on assessing of economic effectiveness on the enterprise. In concrete cases a choice of method of decreasing risk depends on possibilities of its predictions.

3. Methodic recommendations about decreasing of investment risks on the enterprise.

This section is planned to develop recommendations to reduce investment risks in the enterprise. Will be offered guidelines to minimize investment risks by enterprises in Ukraine, as well as proposed model for assessing the level of risk of bankruptcy of enterprises.

Conclusion

Ukraine feels a critical need in investments. An essential increasing of volume of investments and increasing of its using should be in Ukraine. Investment in sizeable degree determined an economic growth of state, fortune of main stocks, innovation level of technique and technology, competitiveness of enterprises and its output, and also an employment of population, growth of its prosperity. Nowadays problems in Ukraine are systematical and appreciably prevent country from increasing of volumes of investments into state economic.

There are some steps which provide decreasing of risk and vagueness. During analyze and assessing of risk various methods find a use, each of which differs by reliability and difficulty of results. Risk is assessed by fixed algorithm, which takes into account an interval of planning and forecasting possible risk events, value of information and chosen method of problem solving. Results of analyze and assessing are the foundation for making steps to it solving. In conclusion should be marked out that management of risk is a difficult problem, which can be solved only with the help of comprehensive approach, which needs the whole arsenal of funds to be used, including strict economic and mathematical methods of calculation of risk.

References

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Note

At the moment of writing this abstract master's qualification work is not completed yet. Final completion is scheduled for December 2012. Full text of the work and materials on the subject of the work can be obtained from the author or her supervisor after this date.