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A risk

Team Leader Presenter

The decision makers are always looking forward to an accounting system that is likely to bring out the
risks involved in all projects of an organization.” So how does an accounting system bring out the risks?
Please provide an example.

A risk is inevitable due to unforeseen circumstances in the turbulent business
environments. Be as it may, a risk refers to the possibility of danger, injury or loss or other
extreme outcomes of undertaking a particular activity (Kerzner, 2013). Decision makers in an
organization use different techniques such as probability distributions, decision trees, hedging
techniques, discounted cash flow and capital asset pricing model to determine the risk involved
in undertaking different projects in the organization. Accounting systems bring out the risks in a
project through project risk management process. This process encompasses of undertaking risk
management through planning, detection of risk, risk analysis, response planning as well as
controlling the risk that may occur in a project (Knight, 2012).
Risk identification is important so as to identify potential risks of a project and develop
strategies to mitigate those risks. This is important to ensure that projects are completed within
the stipulated time and that they meet the set quality standards.
Once decision makers have a clear comprehension of the risks of their current project and
business activities, they are required to research on the risks in their proposed project using Net
Present Value (NPV) calculation, probability distribution of discounted cash flow and risk
premiums calculation (Edwards & Bowen, 2013). It is important to have a consistent approach
when evaluating project risks and economics. For example, in an Oil company, the best
approach for project evaluation involve three phases that is; project’s risk-return profile

presented in a form of a probability distribution, standardized summary of measurements for
return and risk, as well as a full description of all the sources of risk. In such a company, the
whole process involves the project team strategic planning department and other key
stakeholders. The project team identifies the basic economic drivers requisite for the project; the
strategic department prescribes the consistent central assumptions that are paramount for
accessing the risks involved while other stakeholders help in ensuring that the underlying method
chosen in doing the risk assessment is robust.


Kerzner, H. R. (2013). Project management: a systems approach to planning, scheduling, and
controlling. John Wiley & Sons.
Knight, F. H. (2012). Risk, uncertainty and profit. Courier Corporation.
Edwards, P., & Bowen, P. (2013). Risk management in project organisations. Routledge.

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