Decision-Making Under Uncertainty: How Risk Assessment Impacts ROI Calculations

This class will discuss various sources of risk, ways to measure and quantify these risks, and how to incorporate them the ROI on an on-going basis.


2019 Date: TBD


8:00am - 12:00pm

Registration fee includes tuition, course materials, parking and breakfast.


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About the Program

Companies often make project and investment decisions based on a simple return on investment (ROI) model with a single hurdle rate. The basic ROI approach is widely used when making purchasing decisions, deciding production strategies, which projects to bid on, and more. When risks are not accurately assessed, the ROI metric can be misleading, leading to the selection of unprofitable projects. A systematic investment in unprofitable projects can, in the short term, drain all of the company’s financial resources and leave it short of liquid assets. A systematic misallocation of resources will result, in the long term, the company to lose its technological and competitive advantage.


Moving away from a simplistic ROI approach is important for all firms, but particularly so for small, growth-oriented, and R&D intensive companies. These companies are often cash-constrained, do not have access to capital markets, and rely crucially on the right project selection to continuously innovate and grow. This class will discuss various sources of risk, ways to measure and quantify these risks, and how to incorporate them the ROI on an on-going basis. Alternatives to the ROI measure will also be discussed. These alternatives become increasingly important when companies have multiple growth opportunities with various degrees of uncertainty.


Ross Valkanov is an associate professor of finance at the Rady School. He received his Ph.D. in economics from Princeton University. In 1999, he became an assistant professor of finance at UCLA's Anderson School of Management where he remained until his appointment at UC San Diego. From 2001-2004 he served as an assistant professor of finance at the University of California, Berkeley's Haas School of Management, teaching courses for the master's program in financial engineering.

He is a member of many professional organizations including the American Finance Association, the American Economic Association, the Econometric Society and the Bachelier Society. Dr. Valkanov's main research interests are in the areas of financial econometrics, empirical asset pricing, portfolio choice and monetary economics.


*The Rady School of Management Center for Executive Development (CED) may change, postpone or cancel a class at any time.  We do not provide refunds for any fees related to travel, including but not limited to gas, bus fare, train tickets, airline tickets, etc.  Certificate requirements may also change. We will provide as much notice as possible should this occur.