Risk analysis in the portfolio selection

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Development of a new model to prioritize the selection of major projects or programs from the point of view Profitability - Risk. To optimize the decision of which project is the best for incorporate it into a portfolio under uncertainty

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Risk analysis in the portfolio selection

  1. 1. RISK ANALYSIS IN THEPORTFOLIO SELECTIONDaniel Martín de LucasVI MASTER IN PROJECT MANAGEMENT
  2. 2. Current Context of Projects and PortfoliosRISK ANALYSIS IN THE PORTFOLIO SELECTIONLack of Finance Cost ReductionHigh Volatility ofCommodity Prices
  3. 3. It is especially critical in Capital-IntensiveSectorsRISK ANALYSIS IN THE PORTFOLIO SELECTION
  4. 4. The Decisions May Condition theBusiness ViabilityRISK ANALYSIS IN THE PORTFOLIO SELECTION
  5. 5. It is Necessary to Use Methodologiesfor the Projects SelectionRISK ANALYSIS IN THE PORTFOLIO SELECTION
  6. 6. MethodologyRisk Assessment and ProfitabilityPortfolio Governance Process Flow DiagramPortfolioExecutionPortfolioDevelopmentDefiningthePortfolioCategorizeEvaluateSelectIdentifyPrioritizeBalanze PortfolioReview and Report PortfolioPerformanceAuthorizeCommunicate PortfolioAdjustmentEnterprise EnvironmentalFactorsOrganizational Process AssetsStrategic PlanMonitor BusinessStrategy ChangesStrategic PlanUpdateNew CriteriaRefined SelectionCriteriaRebalancingRecommendationsExpectations andRequirementsResources andConstraints DataOtherOrganizationalProcess AssetsCapacity ConstrainsOrganizational ResourcesRISK ANALYSIS IN THE PORTFOLIO SELECTION
  7. 7. Risk Assessment and ProfitabilityAdapting The Modern Portfolio Theory to Investmentproject selection, We will choose those projects thatmeet the requirements specified Profitability-Risk, which we shall call Efficient Zone.Harry M. Markowitz James TobinRISK ANALYSIS IN THE PORTFOLIO SELECTIONEfficientZone
  8. 8. RISK ANALYSIS IN THE PORTFOLIO SELECTIONPortfolio Governance Process Flow DiagramPortfolioExecutionPortfolioDevelopmentDefiningthePortfolioCategorizeEvaluateSelectIdentifyPrioritizeBalanze PortfolioReview and Report PortfolioPerformanceAuthorizeCommunicate PortfolioAdjustmentEnterprise EnvironmentalFactorsOrganizational Process AssetsStrategic PlanMonitor BusinessStrategy ChangesStrategic PlanUpdateNew CriteriaRefined SelectionCriteriaRebalancingRecommendationsExpectations andRequirementsResources andConstraints DataOtherOrganizationalProcess AssetsCapacity ConstrainsOrganizational ResourcesMethodologyRisk Assessment and Profitability
  9. 9. Evaluate•Definition of probability distribution functions.•Creation of tables for economic simulation.Concepto / AñoMaterial ejecución Año 1 Año 2 Año 3 Año 4 Año 5 VALORES ACTUALIZADOSHormigon (m3) 35.000,00Hormigon (€) 2.568.362,17 0,00 0,00 0,00 0,00 2.334.874,70Aluminio (T) 8.000,00 600,00 1,00 0,70 0,70Aluminio (€) 15.240.707,41 1.205.033,15 2.262,06 1.863,54 1.982,74 14.855.287,20Acero (T) 30.000,00 2.000,00 10,00 8,00 8,00Acero (€) 29.995.112,92 2.759.467,66 15.985,37 12.589,38 13.153,82 29.577.612,51Cobre (T) 7.000,00 5,00 1,00 0,50 0,00Cobre (€) 40.755.540,62 29.730,66 6.139,58 3.692,77 0,00 37.082.197,23Gasoil (MWh) 1.000,00 500,00 500,00 500,00 500,00Gasoil (€) 113.388,27 57.977,95 60.980,68 62.803,09 75.047,05 286.305,26KWH 350.000,00 20.000,00 20.000,00 20.000,00 20.000,00KWH (€) 47.107,79 4.237,84 4.006,28 6.378,15 3.975,60 56.162,48Carbón (T)Carbón (€)GAS (MWh) 0,00 80.000,00 90.000,00 90.000,00 90.000,00GAS (€) 0,00 8.639.586,74 48.982.649,56 19.786.312,53 15.940.342,18 67.353.559,98Otros 19.679.158,59 9.271.505,90 7.004.054,72 7.290.641,33 7.719.110,99 40.587.362,46COSTES MATERIAL 108.399.377,77 21.967.539,90 56.076.078,25 27.164.280,80 23.753.612,39 192.133.361,82Horas 500.000,00 200.000,00 200.000,00 200.000,00 200.000,00COSTES MANO DE OBRA 2.669.177,11 1.268.422,75 1.215.790,24 1.636.681,08 4.196.247,67 8.111.663,97COSTES SUBCONTRATACIÓN 32.062.863,97 19.255.500,65 2.410.991,28 1.206.826,87 884.666,62 48.246.695,85COSTES INDIRECTOS 5.725.256,75 1.699.658,53 2.388.114,39 1.200.311,55 1.153.381,07 9.939.668,87COSTES TOTALES € 148.856.675,60 44.191.121,83 62.090.974,16 31.208.100,31 29.987.907,75 258.431.390,51PRODUCCIÓN 0,00 194.665.632,54 606.109.397,40 662.923.218,23 624.916.609,76INGRESOS TOTALES 0,00 41.248.079,26 121.412.293,58 211.411.026,32 124.220.992,62 346.836.213,56MARGEN OPERATRIVO -148.856.675,60 -2.943.042,57 59.321.319,41 180.202.926,01 94.233.084,87 88.404.823,05Tasa de descuento (10) 0,10 SGM % 25,49VAN 97.245.305,35TIR 29,71TIR MEDIA 30,17 SGM % (MEDIA) 25,85Std Dev 11,56 Std Dev SGM% 13,58RISK ANALYSIS IN THE PORTFOLIO SELECTION
  10. 10. Evaluate•Monte Carlo simulation results.RISK ANALYSIS IN THE PORTFOLIO SELECTION
  11. 11. MethodologyRisk Assessment and ProfitabilityRISK ANALYSIS IN THE PORTFOLIO SELECTIONPortfolio Governance Process Flow DiagramPortfolioExecutionPortfolioDevelopmentDefiningthePortfolioCategorizeEvaluateSelectIdentifyPrioritizeBalanze PortfolioReview and Report PortfolioPerformanceAuthorizeCommunicate PortfolioAdjustmentEnterprise EnvironmentalFactorsOrganizational Process AssetsStrategic PlanMonitor BusinessStrategy ChangesStrategic PlanUpdateNew CriteriaRefined SelectionCriteriaRebalancingRecommendationsExpectations andRequirementsResources andConstraints DataOtherOrganizationalProcess AssetsCapacity ConstrainsOrganizational Resources
  12. 12. Select of ProjectsCreating Efficient Frontier•Selected historical stock quotes.•Covariance matrix.•Calculation of optimal portfolios.RISK ANALYSIS IN THE PORTFOLIO SELECTION
  13. 13. 0.0010.0020.0030.0040.0050.0060.0070.000.00 20.00 40.00 60.00 80.00 100.00 120.00Performance%Risk σMARKOWITZRISK ANALYSIS IN THE PORTFOLIO SELECTIONSelect of ProjectsCreating Efficient Frontier
  14. 14. Rf → Germany 10-Year Bond Yield = 3.108%•Tangent φ =0.7120.0010.0020.0030.0040.0050.0060.0070.0080.000.00 20.00 40.00 60.00 80.00 100.00 120.00Performance%Risk σTOBINMARKOWITZRISK ANALYSIS IN THE PORTFOLIO SELECTIONSelect of ProjectsCreating Efficient Frontier
  15. 15. Zona Eficiente0.005.0010.0015.0020.0025.0030.0035.0040.0045.000.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00Performance%Risk σTOBINRiesgo LimiteCMCProyecto AProyecto BProyecto CProyecto DProject DProject CProject BProject ARisk LimitEfficient ZoneProjectsInclude the following restrictions :•Fix the maximum level of risk.•Marginal Cost of Capital.RISK ANALYSIS IN THE PORTFOLIO SELECTIONSelect of ProjectsCreating Efficient Frontier
  16. 16. MethodologyRisk Assessment and ProfitabilityRISK ANALYSIS IN THE PORTFOLIO SELECTIONPortfolio Governance Process Flow DiagramPortfolioExecutionPortfolioDevelopmentDefiningthePortfolioCategorizeEvaluateSelectIdentifyPrioritizeBalanze PortfolioReview and Report PortfolioPerformanceAuthorizeCommunicate PortfolioAdjustmentEnterprise EnvironmentalFactorsOrganizational Process AssetsStrategic PlanMonitor BusinessStrategy ChangesStrategic PlanUpdateNew CriteriaRefined SelectionCriteriaRebalancingRecommendationsExpectations andRequirementsResources andConstraints DataOtherOrganizationalProcess AssetsCapacity ConstrainsOrganizational Resources
  17. 17. PrioritizeSimulating and analyzing the behavior of the Profitability-Risk ofthe current portfolio, when adding the different projects selected, wedetermine the order of priority.0.002.004.006.008.0010.0012.0014.000.00 2.00 4.00 6.00 8.00 10.00 12.00Performance%Risk σTOBINRiesgo LimiteCMCINICIALINICIAL+PROYECTO BINICIAL+PROYECTO CINICIAL+PROYECTO DEfficientPortfolios Zone•Fix the maximum level of risk for the portfolio.•Marginal Cost of Capital.1º- Project B2º- Project D3º- Project CRISK ANALYSIS IN THE PORTFOLIO SELECTION
  18. 18. MethodologyRisk Assessment and ProfitabilityPortfolio Governance Process Flow DiagramPortfolioExecutionPortfolioDevelopmentDefiningthePortfolioCategorizeEvaluateSelectIdentifyPrioritizeBalanze PortfolioReview and Report PortfolioPerformanceAuthorizeCommunicate PortfolioAdjustmentEnterprise EnvironmentalFactorsOrganizational Process AssetsStrategic PlanMonitor BusinessStrategy ChangesStrategic PlanUpdateNew CriteriaRefined SelectionCriteriaRebalancingRecommendationsExpectations andRequirementsResources andConstraints DataOtherOrganizationalProcess AssetsCapacity ConstrainsOrganizational ResourcesRISK ANALYSIS IN THE PORTFOLIO SELECTION
  19. 19. Balancing the PortfolioUsing sensitivity analysis, we study the combining of thecomponents for the portfolio with the greatest potential toachieve strategic objectives.1º- Current Portfolio + Project B 2º- Current Portfolio + Project D 3º- Current Portfolio + Project CCurrent PortfolioRISK ANALYSIS IN THE PORTFOLIO SELECTION
  20. 20. ConclusionesIt is a method that helps in making decisions to buildoptimal portfolios from the point of Profitability - Risk .This focused on capital-intensive projects, since the costof simulation and the collecting of precise data fromeach of them can be elevated.Not evaluates projects and portfolios in an isolatedway, but also gives us an approximation of it relative tothe market.RISK ANALYSIS IN THE PORTFOLIO SELECTION
  21. 21. THANKSdanielmartindelucas@gmail.comDaniel Martín de LucasVI MASTER IN PROJECT MANAGEMENT

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