Application of Risk Analysis in Business Investment Decision-Making

Investment decision-makings should be regarded in each business entity as the crucial factor for its long-term prosperity. An acquired decision affects the performance of the company as well as its competitiveness in long time. If a competent investor has an interest to make a qualified investment decision, it means that he must primarily determine the time and risk factor. In the capital-intensive investment projects, attention must be paid to the risks that the preparation, realization and use of investment bring. The aim of this paper is to identify critical factors that affect the expected profit and cash flow in the implementation of investment projects by applying the most advanced models used to quantify the risks of investing. Research was conducted in a wood processing and furniture manufacturing company. The results given by cash flow indicatiors show that the investment project is feasible and effective. By changing some parameters, sensitivity analysis shows that the main risk factors for the project in question are the selling price, volume of production, material costs and labor costs.