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Qualitative Factors Relevant For Evaluating The Risk

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Posted on 
April 25th, 2025
Home Uncategorized Qualitative Factors Relevant For Evaluating The Risk

Risk is very important aspect to consider before proceeding with any type of project. The title of the article suggests that the market of steel has become more competitive and the same fact has not been expected by any companies across the globe. The reference has been made to prices of the year 2007 and 2011. The company has decided to go with the steel project. With the passage of time and with the increase of the population the company is more focusing on the steel framed structures rather than the concrete based structures. Following qualitative factors are required to be considered while evaluating the risk associate with the project.

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  • Onsite Safety– First and foremost factors that determines the risk in the project of the construction is on site safety. On site safety means the conditions of the work available to the workers at the work site.  It basically deals with the onsite safety that is made available for the workers working at the site. In case of every project it is required to be considered. In the given case, the company has opted for the steel framing and as per report of the Australia Steel Institute, the steel framing construction will reduce the workers in numbers employed at the location site and thereby reducing the extent of liability of the builders to the reduced number of workers. There is another major risk which is linked with the neighbors residing near to or adjacent to the work site. The steel framed structure so developed will not disturb the neighborhoods in any manner as done in the concrete structure.     
  • Project Duration Planning – Though it has been recognized internationally that the steel framed structure will help in reducing the construction time and will in turn build the structure in due time. While developing any kind of project, the total time to be taken by the project shall be analysed and calculated using the cost management techniques including the PERT – Program Evaluation and Review Technique and CPM – Critical Path Method. Through this method the company will be able to analyze the risky areas very easily which is leading the long duration of the project. It has been seen there will always be the activity which will be resulting in the delay in the completion of the project. The company shall evaluate those activities and shall reduce the risk of having the wrong planning of the duration of the project. 
  • Waste – This is considered as the major factor which each company shall consider before proceeding with any type of the project. The generation of waste and dumping in the water is regarded as the violation of the environmental protection law. The company shall review whether the project so proposed to be taken have considered the aspect of the protection of the environment or not and have considered the social impact that the project waste will have. This is generally because of wrong estimation of the project details. Therefore, there will always be the risk of environmental hazards if the project has not been evaluated in qualitative terms.     

 (d) Sensitivity Analysis 

Sensitivity Analysis on NPV

1

If Sales Increased by 10%

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YEARS

0

1

2

3

4

5

Cash Outflows

Initial Outlay

 $ (100,000,000.00)

Rent

 $          (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

Working Capital

 $    (12,000,000.00)

Total Cash Outflow

 $ (112,864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

Cash Inflows

Sale of Old Equipment

 $      14,920,000.00

 $  14,935,040.00

Tax Savings on Depreciation

 $    5,600,000.00

 $    4,480,000.00

 $    3,584,000.00

 $    2,867,200.00

 $    2,293,760.00

Working Capital

 $  12,000,000.00

After Tax Net Cash Flows

 $  42,300,000.00

 $  42,300,000.00

 $  42,300,000.00

 $  42,300,000.00

 $  42,300,000.00

Total Cash Infow

 $      14,920,000.00

 $  47,900,000.00

 $  46,780,000.00

 $  45,884,000.00

 $  45,167,200.00

 $  71,528,800.00

Net Cash Inflow

 $    (97,944,000.00)

 $  47,036,000.00

 $  45,916,000.00

 $  45,020,000.00

 $  44,303,200.00

 $  70,664,800.00

PVF(10%,n)

1.00

0.91

0.83

0.75

0.68

0.62

PV of Net Cash Flows

 $    (97,944,000.00)

 $  42,760,000.00

 $  37,947,107.44

 $  33,824,192.34

 $  30,259,681.72

 $  43,877,281.11

Net Present Value

 $      90,724,262.60

2

If Variable Cost Increased by 10%

YEARS

0

1

2

3

4

5

Cash Outflows

Initial Outlay

 $ (100,000,000.00)

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $                          –   

Rent

 $          (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

Working Capital

 $    (12,000,000.00)

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $                          –   

Total Cash Outflow

 $ (112,864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

Cash Inflows

Sale of Old Equipment

 $      14,920,000.00

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $  14,935,040.00

Tax Savings on Depreciation

 $                              –   

 $    5,600,000.00

 $    4,480,000.00

 $    3,584,000.00

 $    2,867,200.00

 $    2,293,760.00

Working Capital

 $                              –   

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $  12,000,000.00

After Tax Net Cash Flows

 $  38,160,000.00

 $  38,160,000.00

 $  38,160,000.00

 $  38,160,000.00

 $  38,160,000.00

Total Cash Infow

 $      14,920,000.00

 $  43,760,000.00

 $  42,640,000.00

 $  41,744,000.00

 $  41,027,200.00

 $  67,388,800.00

Net Cash Inflow

 $    (97,944,000.00)

 $  42,896,000.00

 $  41,776,000.00

 $  40,880,000.00

 $  40,163,200.00

 $  66,524,800.00

PVF(10%,n)

1.00

0.91

0.83

0.75

0.68

0.62

PV of Net Cash Flows

 $    (97,944,000.00)

 $  38,996,363.64

 $  34,525,619.83

 $  30,713,749.06

 $  27,432,006.01

 $  41,306,666.83

Net Present Value

 $      75,030,405.37

3

If Working Capital Increased by 10%

YEARS

0

1

2

3

4

5

Cash Outflows

Initial Outlay

 $ (100,000,000.00)

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $                          –   

Rent

 $          (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

Working Capital

 $    (13,200,000.00)

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $                          –   

Total Cash Outflow

 $ (114,064,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

Cash Inflows

Sale of Old Equipment

 $      14,920,000.00

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $  14,935,040.00

Tax Savings on Depreciation

 $                              –   

 $    5,600,000.00

 $    4,480,000.00

 $    3,584,000.00

 $    2,867,200.00

 $    2,293,760.00

Working Capital

 $                              –   

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $  13,200,000.00

After Tax Net Cash Flows

 $                              –   

 $  37,800,000.00

 $  37,800,000.00

 $  37,800,000.00

 $  37,800,000.00

 $  37,800,000.00

Total Cash Infow

 $      14,920,000.00

 $  43,400,000.00

 $  42,280,000.00

 $  41,384,000.00

 $  40,667,200.00

 $  68,228,800.00

Net Cash Inflow

 $    (99,144,000.00)

 $  42,536,000.00

 $  41,416,000.00

 $  40,520,000.00

 $  39,803,200.00

 $  67,364,800.00

PVF(10%,n)

1.00

0.91

0.83

0.75

0.68

0.62

PV of Net Cash Flows

 $    (99,144,000.00)

 $  38,669,090.91

 $  34,228,099.17

 $  30,443,275.73

 $  27,186,121.17

 $  41,828,240.74

Net Present Value

 $      73,210,827.73

4

If Discount Rate Increased by 10%

YEARS

0

1

2

3

4

5

Cash Outflows

Initial Outlay

 $ (100,000,000.00)

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $                          –   

Rent

 $          (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

Working Capital

 $    (12,000,000.00)

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $                          –   

Total Cash Outflow

 $ (112,864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

Cash Inflows

Sale of Old Equipment

 $      14,920,000.00

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $  14,935,040.00

Tax Savings on Depreciation

 $                              –   

 $    5,600,000.00

 $    4,480,000.00

 $    3,584,000.00

 $    2,867,200.00

 $    2,293,760.00

Working Capital

 $                              –   

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $  12,000,000.00

After Tax Net Cash Flows

 $                              –   

 $  37,800,000.00

 $  37,800,000.00

 $  37,800,000.00

 $  37,800,000.00

 $  37,800,000.00

Total Cash Infow

 $      14,920,000.00

 $  43,400,000.00

 $  42,280,000.00

 $  41,384,000.00

 $  40,667,200.00

 $  67,028,800.00

Net Cash Inflow

 $    (97,944,000.00)

 $  42,536,000.00

 $  41,416,000.00

 $  40,520,000.00

 $  39,803,200.00

 $  66,164,800.00

PVF(11%,n)

1.00

0.90

0.81

0.73

0.66

0.59

PV of Net Cash Flows

 $    (97,944,000.00)

 $  38,320,720.72

 $  33,614,154.70

 $  29,627,874.77

 $  26,219,600.71

 $  39,265,588.43

Net Present Value

 $      69,103,939.33

5

If Sales Decrease by 10%

YEARS

0

1

2

3

4

5

Cash Outflows

Initial Outlay

 $ (100,000,000.00)

Rent

 $          (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

Working Capital

 $    (12,000,000.00)

Total Cash Outflow

 $ (112,864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

Cash Inflows

Sale of Old Equipment

 $      14,920,000.00

 $  14,935,040.00

Tax Savings on Depreciation

 $    5,600,000.00

 $    4,480,000.00

 $    3,584,000.00

 $    2,867,200.00

 $    2,293,760.00

Working Capital

 $  12,000,000.00

After Tax Net Cash Flows

 $  33,300,000.00

 $  33,300,000.00

 $  33,300,000.00

 $  33,300,000.00

 $  33,300,000.00

Total Cash Infow

 $      14,920,000.00

 $  38,900,000.00

 $  37,780,000.00

 $  36,884,000.00

 $  36,167,200.00

 $  62,528,800.00

Net Cash Inflow

 $    (97,944,000.00)

 $  38,036,000.00

 $  36,916,000.00

 $  36,020,000.00

 $  35,303,200.00

 $  61,664,800.00

PVF(10%,n)

1.00

0.91

0.83

0.75

0.68

0.62

PV of Net Cash Flows

 $    (97,944,000.00)

 $  34,578,181.82

 $  30,509,090.91

 $  27,062,359.13

 $  24,112,560.62

 $  38,288,989.20

Net Present Value

 $      56,607,181.68

6

If Variable Cost Decreased by 10%

YEARS

0

1

2

3

4

5

Cash Outflows

Initial Outlay

 $ (100,000,000.00)

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $                          –   

Rent

 $          (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

Working Capital

 $    (12,000,000.00)

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $                          –   

Total Cash Outflow

 $ (112,864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

Cash Inflows

Sale of Old Equipment

 $      14,920,000.00

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $  14,935,040.00

Tax Savings on Depreciation

 $                              –   

 $    5,600,000.00

 $    4,480,000.00

 $    3,584,000.00

 $    2,867,200.00

 $    2,293,760.00

Working Capital

 $                              –   

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $  12,000,000.00

After Tax Net Cash Flows

 $  37,440,000.00

 $  37,440,000.00

 $  37,440,000.00

 $  37,440,000.00

 $  37,440,000.00

Total Cash Infow

 $      14,920,000.00

 $  43,040,000.00

 $  41,920,000.00

 $  41,024,000.00

 $  40,307,200.00

 $  66,668,800.00

Net Cash Inflow

 $    (97,944,000.00)

 $  42,176,000.00

 $  41,056,000.00

 $  40,160,000.00

 $  39,443,200.00

 $  65,804,800.00

PVF(10%,n)

1.00

0.91

0.83

0.75

0.68

0.62

PV of Net Cash Flows

 $    (97,944,000.00)

 $  38,341,818.18

 $  33,930,578.51

 $  30,172,802.40

 $  26,940,236.32

 $  40,859,603.48

Net Present Value

 $      72,301,038.90

7

If Working Capital Decreased by 10%

YEARS

0

1

2

3

4

5

Cash Outflows

Initial Outlay

 $ (100,000,000.00)

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $                          –   

Rent

 $          (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

Working Capital

 $    (10,800,000.00)

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $                          –   

Total Cash Outflow

 $ (111,664,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

Cash Inflows

Sale of Old Equipment

 $      14,920,000.00

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $  14,935,040.00

Tax Savings on Depreciation

 $                              –   

 $    5,600,000.00

 $    4,480,000.00

 $    3,584,000.00

 $    2,867,200.00

 $    2,293,760.00

Working Capital

 $                              –   

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $  10,800,000.00

After Tax Net Cash Flows

 $                              –   

 $  37,800,000.00

 $  37,800,000.00

 $  37,800,000.00

 $  37,800,000.00

 $  37,800,000.00

Total Cash Infow

 $      14,920,000.00

 $  43,400,000.00

 $  42,280,000.00

 $  41,384,000.00

 $  40,667,200.00

 $  65,828,800.00

Net Cash Inflow

 $    (96,744,000.00)

 $  42,536,000.00

 $  41,416,000.00

 $  40,520,000.00

 $  39,803,200.00

 $  64,964,800.00

PVF(10%,n)

1.00

0.91

0.83

0.75

0.68

0.62

PV of Net Cash Flows

 $    (96,744,000.00)

 $  38,669,090.91

 $  34,228,099.17

 $  30,443,275.73

 $  27,186,121.17

 $  40,338,029.57

Net Present Value

 $      74,120,616.55

8

If Discount Rate Decreased by 10%

YEARS

0

1

2

3

4

5

Cash Outflows

Initial Outlay

 $ (100,000,000.00)

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $                          –   

Rent

 $          (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

Working Capital

 $    (12,000,000.00)

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $                          –   

Total Cash Outflow

 $ (112,864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

 $      (864,000.00)

Cash Inflows

Sale of Old Equipment

 $      14,920,000.00

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $  14,935,040.00

Tax Savings on Depreciation

 $                              –   

 $    5,600,000.00

 $    4,480,000.00

 $    3,584,000.00

 $    2,867,200.00

 $    2,293,760.00

Working Capital

 $                              –   

 $                          –   

 $                          –   

 $                          –   

 $                          –   

 $  12,000,000.00

After Tax Net Cash Flows

 $                              –   

 $  37,800,000.00

 $  37,800,000.00

 $  37,800,000.00

 $  37,800,000.00

 $  37,800,000.00

Total Cash Infow

 $      14,920,000.00

 $  43,400,000.00

 $  42,280,000.00

 $  41,384,000.00

 $  40,667,200.00

 $  67,028,800.00

Net Cash Inflow

 $    (97,944,000.00)

 $  42,536,000.00

 $  41,416,000.00

 $  40,520,000.00

 $  39,803,200.00

 $  66,164,800.00

PVF(9%,n)

1.00

0.92

0.84

0.77

0.71

0.65

PV of Net Cash Flows

 $    (97,944,000.00)

 $  39,023,853.21

 $  34,859,018.60

 $  31,288,874.61

 $  28,197,590.36

 $  43,002,580.19

Net Present Value

 $      78,427,916.97

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