The introduction of risk analysis in project financing: Advanced methodologies for the solution of a complex project

The aim of the article is to analyse recent methods of risk analysis to identify which of them could be used in the study of projects and their management. We use project management techniques, and other O.R. methodology. In the paper we apply the methods of risk analysis to an actual project to develop a decision support model to help analyse and manage the risks of a project financing operation. Due to project complexity and the high level of risk typical of project financing ventures, it is necessary to identify efficient operational solutions that evaluate every element of risk, which could produce project failures. These risks are higher, less easily identifiable and less quantifiable in a decision-making environment where the information available to a decision-maker is qualitative and subjective rather than quantitative. Consequently the proposed methodologies must have stochastic features and must be easily adaptable to different decision making situations. We emphasise the essential role played by decision support systems in the context of strategic decision and therefore stress the importance of quantitative stochastic methodologies given the strategic dimension assumed by risk analysis in the complex operations of project finance in the decision-making phase. Then we propose an advanced stochastic methodology for project networks, Venture and Review Technique (VERT) , which is chosen for its characteristics of flexibility and thoroughness. This is able to operate at the strategic decision making, while still being flexible and applicable in many decision-making contexts. Finally, we present an application of VERT-3 to the analysis of an actual case of project financing for a public project developing a sports centre and associated infrastructure.