Read the article below and answer ALL the questions that follow.

MAKING BETTER DECISIONS ABOUT THE RISKS OF CAPITAL PROJECTS

Never is the fear factor higher for managers than when they are making strategic investment decisions on multibillion$-$

dollar capital projects. With such high stakes, we have seen many managers prepare elaborate financial models to justify

potential projects. But when it comes down to the final decision, especially when hard choices need to be made among

multiple opportunities, they resort to less rigorous means$$arbitrarily discounting estimates of expected returns, for

example, or applying overly broad risk premiums.

There are more transparent ways to bring assessments of risk into investment decisions. Consultants have found that

some analytical tools commonly employed by oil and gas companies can be particularly useful for players in other

capital$-$intensive industries, such as those investing in projects with long lead times or those investing in shorter$-$term

projects that depend on the economic cycle. The result can be a more informed, data$-$driven discussion on a range of

possible outcomes. Of course, even these tools are subject to assumptions that can be speculative. But the insights they

provide still produce a more structured approach to making decisions and a better dialogue about the trade$-$offs.

QUESTION $1(20$ Marks$)$

Provide advice to the consultants in the article on how the project risk management principles may be implemented

prudently in order to manage their project risks effectively. Ensure that relevant examples are mentioned to justify your theoretical assertions.