Risk Assessment Models of the Activities of Companies Implementing R&D Projects

Abstract

Companies implementing R & D projects encounter their own unique features: they require large capital investments, long-term implementation, they are associated with high growth potential and a low probability of success, as well as financing problems. Some of the problems encountered have been studied before and are still being investigated. In recent years, there have been studies at the model level of problems on the financing of R & D projects. The problem of risks arising from the implementation of R & D projects has been dealt with at a narrative level in many papers. At the model level, from our point of view, this problem has not yet been sufficiently studied. The model presented in this paper allows to investigate the risks that companies face while implementing R&D projects and to develop a method for assessing the corresponding risks using a modified VaR measure. The formulae have been obtained to calculate this measure and they have been transformed to simple analytical expressions under the assumptions of a uniform distribution of cash flow of the project or by triangular distribution. The constructed model takes into account the most important causes of risks in projects with R&D, which investors intuitively sense. The constructed model allows to evaluate the risks of projects with R & D using the VaR risk measure with all possible parameters present in the model. This model can be used in practice both for preliminary risk assessment of an R & D project even before its implementation and taking a decision on risk-based implementation, as well as for standardising the decision-making process on projects with R & D with a standardised “risk appetite” using VaR risk measuring method.