Economic Impact and Risk Profile

Economic Impact

The feasibility of an investment proposal is often assessed from a point of view of the return on investment. In similarity a research and innovation proposal needs to be analysed in terms of its outcome and the impact it would have on the economy at large. The higher the positive impact on the economy a proposal can generate, the higher is the possibility that a proposal will be funded since the multiplier effect it would generate would justify the investment.

Why should an Economic Impact analysis be undertaken?

Within the context of a research and innovation proposal, the aim of an economic impact analysis is to examine the potential effect of that proposal on a particular economy. This assessment should measure the potential effect of the outcome of the proposal, be it a product, service or technology, in terms of changes in economic growth (output or value added) and associated changes in jobs (employment) and income (wages).

In order to assess the economic potential of a product, service or technology it would be necessary to compare the level of economic activity occurring at a given time with the presence of the product, service or technology, with what would be expected out of the economy if that product, service or technology was not developed.

How is an Economic Impact Analysis carried out?

The economic impact analysis should identify the potential different effects on the economy by identifying and establishing the direct effects, the indirect and induced effects through the expenditure multipliers as well as by assessing the downstream and upstream effects along the supply chain through supply-use effects.

The identification of such effects would allow the analysis to estimate the potential economic impacts of the proposed product, service or technology on output, incomes, employment and productivity, highlighting where relevant the nature and sectoral distribution of jobs created. This would provide an estimate of the overall contribution to the local economy and its contribution in terms of economic growth, jobs and income.

The economic impact analysis would provide estimates of the relevant potential external benefits and costs in particular the environmental, resource use, social and human capital creation effects. These are many a times referred to as welfare costs and benefits.

What are the main outcomes of an Economic Impact Analysis?

Within the context of the Commercialisation Voucher Programme, this analysis would show the incremental effect of the proposed research and innovation proposal on the local economy. It will show whether the proposed product, service or technology would eventually have an overall positive impact on the Maltese economy or otherwise.

Risk Profile

The goal of a risk profile is to provide a non-subjective understanding of risk by quantifying the different types of threats posed. A risk profile can be a useful tool for discussing and evaluating a potential investment’s ability to maximize the return on investment while minimizing risk. It is rather important that before proceeding with an investment proposal there is an understanding and measure of the risk posed by the proposal and the risk appetite of the investor.

What is the main objective of a Risk Profile?

The main objective of a risk profile is to determine the level of risk involved if an investor had to make a decision to invest in a research and innovation proposal. Risk profiling is necessary to determine if an investment is suitable for an investor or otherwise since this would identify the risk involved if one had to undertake such an investment.

This analysis would provide an evaluation of the willingness to take risks, as well as the threats that one would be exposed to. The risk profile would identify the acceptable level of risk an investor is prepared to accept. This will affect its overall decision-making strategy. It will also provide information on the risks and threats that will eventually be encountered.

How is a Risk profile carried out?

Based on statistical modelling and analysis the risk profile identifies the drivers and pressures that are likely to constitute sources of risk,as well as the sensitivity which is faced. This will determine the critical risk variables. In summary, the risk profile will outline the potential costs and determine the probability of the resulting effects.
Often, various scenarios are considered and presented in order to quantify the effects of pre-determined shocks, and to identify the extent of shocks required to completely remove the benefits of the proposal.

What could be concluded from a Risk Profile Analysis?

The results derived out of a risk profile analysis should enable an investor to evaluate the risk to which a portfolio is exposed and to make buy and sell decisions based on this risk and on their willingness to accept risk.