Allocation of risk in the investment process

One of the problem in allocation of risk in the investment process is the need to determine the sources of risk. The next step is to find the method to reduce the risk cost effectively. This paper examines possible methods of risk allocation and considers the information needed for a proper assessment of importance. The paper offers some practical suggestions for dealing with this problem.

ALLOCATION OF RISK IN THE INVESTMENT PROCESS

One of the problems of risk transfer in the investment process is the necessity of defining the source of risk beforehand. The next step is to find a way to reduce the risk level in a cost-effective manner.

The article presents possible methods of risk allocation and analyzes the factors influencing the proper assessment of risk. Practical suggestions regarding risk management in terms of its proper transfer are presented.

INTRODUCTION

Risks will happen during the lifetime of a project and some of these can seriously damage the project. Allocation of risk allow to avoid, reduce, absorb or and exploit potential opportunities. Projects evolve in rapidly changing environments because of the pace of technological development, increasing complexity, new methods and tools, new markets, increased competition, novel business opportunities and demanding customers [1,2].

Among the investigated types of risks are: business risk, investment risk, economic risk, social, political, etc. Risk can mean many different phenomena, we have different definitions of risk and it can be approached in different ways [3]. Even just look at the problem from a different perspective affects the perception of risk. Investor commencing construction of a new supermarket is concerned that expenses associated with this project fit in their budget, and in opening in the stipulated time limit. The aim is to gain profit from this investment. (…)