The primary purpose of this thesis is to present a feasible method for evaluating the risks of project. Specifically, this is to show how quantitative evaluation of risks of projects might be used in project timing decision problem.
Previous studies of the capital budgeting have suggested a variety of investment analysis techniques for conditions of uncertainty, which can be as deterministic and probabilistic approaches to risk analysis.
The probabilistic approach also might be classified into the two method. One is the analytical method and the other is the simulation method. The former derives the probability distribution from the estimated mean and variance of the individual cash flows based upon the properties of statistical distribution.
But this method has limitation in practical applications, especially when each cash flow in any other year is a function of several variables each of which has its own probability distribution other than the normal distribution usually assumed in analytical method. In practice, the latter is the preferable method for general operational purpose.
In this thesis, simulation method was used to determine the optimum timing of project under risks. Light oil products pipeline project was applied as a case study.
