Risk and Foreign Direct Investment - Index of

184 Risk and Foreign Direct Investment
between the risk exposures and tolerances of different stakeholders – in
other words, whose risk tolerance is the critical one. It does not consider
in any depth what assets are at risk and how this might affect the
measurement. Quite rightly, it sees these issues as separate from the
main analysis, although they should all be part of a proper in-depth
assessment of project risk.
There are a number of significant problems which need to be
addressed after the identification and classification of the different
types of risk and before it is possible to indicate how the evaluation of
an investment project might proceed. The first is to ask the relationship
between a generic measure of country risk and a measure of
project risk. The first applies to any investment in a particular country.
The second is highly specific. In the latter case it is reasonable to ask
how far it is possible, and even desirable, to move beyond an in-depth
qualitative assessment of a particular project, in which there are elements
which need to be considered separately and then weighed
against each other. There is no doubt that this assessment is time consuming
and expensive. It cannot be repeated frequently. Given the
complexity of the risk environments described above, it is likely to
demand the full-time activity of a group of specialists over a period of
months rather than weeks. This leaves unanswered the problem of
review of a project after its implementation or of monitoring the risk
level to which that project is exposed in later years. The key issue is
how far the assessment needs to be up-dated in the later monitoring of
projects which have already been approved. Can the generic risk
measure be used for such a monitoring purpose?
It is also interesting how far the assessment is useful in the assessment
of other projects. There are advantages in pooling such knowledge
and in extending an expertise in this area. Since it is necessary to
compare the relevant project, both with other projects and to assess
the changing standing of the project as circumstances change over
time, it is clearly preferable both to quantify and to reduce the assessment
to a single measure which makes risk a comparative indicator,
one which can be included neatly in any investment project evaluation.
The emphasis is on comparison, so the assessments need to be
carried out consistently.
A second associated problem is that this need for quantification
requires the analyst to find proxies which provide a quantitative
measure of all the relevant components and sub-components, which
often of their nature have qualitative characteristics. It is better to
apply this at the level of sub-components or sub-sub-components, the